M&A Due Diligence for Private Companies

Due diligence is an essential component of any M&A transaction. It helps ensure both sides are aware of the possible advantages and risks of the deal. It also helps ensure that the information a company gives is accurate. This is crucial to avoid unpleasant surprises later. But due diligence can be a difficult process, especially when it is related to M&A deals that involve private companies. Private companies are not obligated to share the same amount as publicly traded companies, making it difficult for buyers to comprehend the business of the company.

Due diligence can be divided into three major categories: commercial, operational and environmental. Operational due diligence involves evaluating the condition of assets, technology and facilities to unearth any hidden costs or liabilities. This type of due diligence usually involves inspections on site. Environmental due diligence assesses the compliance of a company with environmental regulations. It also uncovers any health, environmental or safety concerns that could impact the value of a company. Commercial due diligence is centered on the relationship between the company that is buying and its customers. It analyzes the customer’s demographics and acquisition strategies, as well as the sales performance of a target company to determine if it is able to improve and sustain its revenue.

Due diligence is a long and complex process. It takes a lot of energy and organization and can be difficult when there are multiple parties involved. This can lead to miscommunication, frustration and even delays in the M&A transaction. To avoid this, it’s essential to establish objectives early in the due diligence process and stick to them. Prioritizing the most crucial data is also essential. Information about IP, for example, may be more important than resumes of non-key workers.