Due diligence all too often becomes a "check-the-box" exercise, collecting reams of data but failing to tell executives what they need to know to decide whether to consummate the deal. The best deal makers zero in on the big questions - the ones that, once answered, will demonstrate whether or not there is a match between the target and the acquirer's investment thesis. What's critical in due diligence isn't how much you know; rather, it's determining what you don't know and should know, and then nailing down that information.
Unfortunately, that kind of disciplined due diligence is an exception. When Bain surveyed 250 executives involved in M&A, only 30 percent expressed satisfaction with the rigor of their due diligence process.
To determine which deals to close, build your due diligence process around three critical steps:
- Test the investment thesis. Concentrate on the big questions, and thoroughly answer them by building a proprietary, bottom-up view of the target and its markets.