M&A Due Diligence for Private Companies

Due diligence is an important component of any M&A deal. It ensures that both parties are aware of the possible benefits and dangers of the deal. It will also ensure that all information provided by a company is accurate. This is vital to avoid any surprises in the future. But due diligence can be a complicated process, especially when it comes to M&A deals involving private companies. Private companies aren’t required to share the same amount of information as publicly traded companies making it difficult for investors and buyers to understand a company.

Due diligence can be classified into three main categories: commercial, operational and environmental. Operational due-diligence focuses on checking the condition of technology, assets and facilities to unearth any hidden costs or liabilities. This type of due diligence typically involves inspections on-site. Environmental due diligence assesses compliance with environmental laws. It also identifies any health, environmental or safety concerns that could negatively impact the value of a company. Commercial due diligence is centered on the relationship between the acquiring company and its customers. It determines the demographics of customers and acquisition strategies, as well as sales performance to determine if the company that is being targeted can grow and sustain revenue.

Conducting due diligence is a difficult and time-consuming process. Due diligence requires a great amount of effort and organization which can be challenging when multiple parties are involved. This can lead to miscommunication, frustration, and even delays in the course of an M&A transaction. To avoid this, it is essential to establish goals early in the process of due diligence and stick to them. Prioritizing the most crucial information is also crucial. For instance, information about IP may be critical, while resumes of non-key personnel aren’t as important.

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