We're back and we're ready to get back to business - specifically, the continuation of our series on why M&A deals fail. This week, a dive in into Poor Due Diligence.
Poor Due Diligence: Inadequate due diligence can lead to unexpected liabilities, overvaluation, and a misunderstanding of the target company's actual financial health and operational challenges.
To combat the issues related to poor due diligence in industrial M&A transactions, consider the following tips:
1. Conduct a Comprehensive Financial Analysis – conduct an in-depth financial analysis.
a. Review Audited 3-yr Financial Statements
b. Examine Cash Flow Analysis to understand liquidity and cash management.
c. Assess all existing debts and liabilities, including off-balance-sheet items.
d. Validate inbound inventory purchases and timing.
e. Validate inbound rental equipment purchases and timing.
2. Operational Due Diligence - Investigate the target company's operations thoroughly.
a. Perform site visits to key facilities to assess operational efficiency and capacities. This will include visuals on safety practices, examples of lean in action including visual production flow.
b. Analyze the supply chain for potential risks and dependencies including supplier on-time delivery, cost of quality and responsiveness to production issues.
c. Evaluate the current technologies employed, the age of these technologies and other infrastructure and how these various systems are integrated to drive operational efficiencies.
d. For rental businesses, analyze fleet, age and utilization rates. Verify seasonal trends.
3. Expert Consultation - hire industry experts to gain insights into operational, aftermarket and field services, inventory and rental operations. They may include product-market-operational specialists with know-how in new equipment, aftermarket and rental operations.
More on this hot topic to come!
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