Due diligence is no fun for entrepreneurs who are selling their startups. So how important is due diligence in acquisitions?
This is the least fun part of being an entrepreneur. Even if it wasn’t essential, it can certainly teach you a lot about business. It will definitely make sure you are prepared next time and will ensure your next business is much more tightly organized than the first.
Some acquirers drag out due diligence for months on end. Those who regularly do M&A deals and have a very systemized process like Google can breeze through it very quickly. There are many other factors that can play into how long it takes and how painful it is, or not. Though the bottom line is that it is absolutely a necessary step.
Why is it so important?
It’s a Responsibility the Buyer Must Follow Through On
It’s the buyer’s duty to their investors and shareholders to do their due diligence in acquisitions. They need to take care of their company and employees too. They have to prove they’ve done everything they can to mitigate risk and justify the deal. The failure to do so won’t just cost jobs but can wipe out billions of dollars in value and thousands of jobs.
It Relieves the Seller of Risk
The last thing you would want as a founder is to announce this grand exit, start spending your millions and then having it all clawed back in a lawsuit because you omitted some key information. Due diligence in acquisitions protects you are the seller as well. You served up everything they asked for.
Makes Sure it is a Good Fit
Integration is a killer if you are wondering how important is due diligence in acquisitions. The majority of M&A deals don’t work out well. They are normally big losses for acquirers. This is largely due to the integration. This can come down to general synergy, technical integration, and company culture.
The process itself will be very telling. You’ll certainly get a much better idea of who you are dealing with on all levels once due diligence starts. That’s important for both sides.
This period will help both sides really formulate a successful integration plan, determine whether each is really the great partner they hoped and gets very practical in the application of merging teams.
Startups.com blames poor due diligence and synergy for the debacle of the Sprint Nextel merger, and the resulting $30B write-down and junk rating of Sprint shares. That’s an expensive blunder for everyone involved.
See How I Can Help You With Your Fundraising Efforts
- Fundraising Process : get guidance from A to Z.
- Materials : our team creates epic pitch decks and financial models
- Investor Access : connect with the right investors for your business and close them