It may seem like an exciting proposition if your company is suddenly being approached about a potential acquisition. However, understanding the primary goals, motivation and purpose of another organization’s true interest in your business is essential from the very beginning before you even get into the financials.
Below, 12 Forbes Business Development Council members share best practices business owners can use when doing their due diligence in determining whether a value proposition lines up with their company’s overall core mission and vision for the future.
Members pictured from left to right.
Photos courtesy of individual members.
1. Make Sure Your Company Goals Are Aligned
Acquisitions should always be strategic. Before reviewing details, make sure that the company as a whole aligns with your already established mission, values and purpose. An understanding of your vision and commitment to the continuance of positive growth and development is key. After, dive in and look at overhead, debts and operations. Consulting with a business broker and attorney is also recommended. – Josh Snow, Snow
2. Assess The Opportunity, Its Values And Employee Structures
There are various stages to doing your due diligence when reviewing a potential deal. As you qualify your prospective company through each stage, the level of diligence should grow more detailed. During the first engagement, strive to understand the business opportunity, its values and employee structures. You should also have a list of your deal breakers. If they get through that first stage, the move into detailed diligence would and should be aided by finance and legal experts. – Lisa Box, Identity Digital Inc.
3. Set Up A KYC Document
Use a know-your-customer (KYC) document for the research process. It’s also important to request the passport data page of all the directors and shareholders of the inquiring company. – Habila Malgwi, Spur Energy
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4. Review The Company’s Business Plan
A business plan is a must-have when considering an acquisition. It will show current processes, gaps and potential for the company’s growth within the sector. It also reveals risks as well as areas for margin increases and reducing costs and time waste. It will show what worked for the company in the past and reveals what approaches are no longer valid. This helps with an acquisition consideration. – Ashley Cheeks, Written Success
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5. Evaluate Key Financial Statements
There are three financial statements that are key for leaders to evaluate during a potential merger and acquisition deal: the balance sheet, the statement of cash flows and the income statement. A combination of these important documents becomes a powerful tool to evaluate a company through financial equations. The four key equation elements are profitability, leverage, liquidity and efficiency ratios. These ratios will tell you the health of the company and any areas of concern. – Joshua Meunier, WinRate Consulting
6. Inspect The Organization’s Core Competencies
Inspect what you expect. Most companies are looking to partner for a reason. It is okay to uncover and discuss flaws, weaknesses and areas for improvement so long as they line up with the core competencies of the acquiring company. The offer should amplify the assets and opportunities of both organizations. – David Mattson, Sandler
7. Hire A Professional To Represent You
It’s important to hire a professional who can represent you in the process. Handling due diligence on your own will be the most costly professional mistake you ever make. – Tyler Trimbath, Trimbath Advisory Group
8. Look At The Corporation’s Reputation
When we seek acquisitions, financial and administrative figures feature prominently of course. We also look at qualitative factors like talent retention, culture for innovation and surrounding metrics. A dealbreaker for us would be any tolerance for corporate misdemeanors. Non-publicly available data research can be challenging. For this, we turn to personal networks to learn about the reputation of the business and its leadership team. – Wajid Mirza, Arthur Lawrence
9. Inquire About Their Interest In Your Company
Understanding the purpose of the acquisition is key. Is it for the entire entity, technology, talent, codebase or customer base? Next, dive into the alignment of company values, the market demand, technology fit, codebase and overall offering and the health of the company. Take a deep dive into double-checking their numbers. – Anastasia Valentine, Wagepoint
10. Figure Out If There Is A Wide Cultural And Ideological Fit
Having experienced this process myself firsthand, and leading it to a successful close, I think the most important criterion is to figure out if there is a wide cultural and ideological fit. This cannot be found by going over the balance sheets, corporate social responsibility (CSR) initiatives, quarterly performance reviews and other typical corporate information. Instead, the way to find out if this organization is a good fit is by reviewing what its customers, employees—past and present—and social media history has to say. – Mustansir Paliwala, EQUANS
11. Find Out If Current Business Contracts Are Up To Date
If your company is approached, you must research the interested business establishment and its top people. You also need to examine contracts that the company already has and ensure they’re up to date. If you find outdated agreements, it may be a sign that the company hasn’t updated its contracts in a while and they may not be up to date on other things as well. It’s not just about money; the company needs to have its house in order. – Wayne Elsey, The Funds2Orgs Group
12. Develop A Well-Rounded Impression Of The Offer
We use a multifaceted approach that includes our own internal company profiling mechanisms, independent advice from paid third parties, shareholder feedback and reactions and, finally, a common sense test. Sometimes you will never know exactly what the right decision is for you to make and when to make it. Implementing the above-mentioned factors will generally ensure that you have a well-rounded impression of the incoming offer. – Peter Schravemade, REACH ASEA
