Due Diligence
"Luck is what happens when preparation meets opportunity!" – Vince LombardiDue diligence is the cornerstone of private equity investment success. There are many reasons for conducting due diligence, including the following:
- Confirmation that the business is "what it appears to be"
- Identify potential "deal killer" defects in the target and avoid a bad business transaction
- Gain information that will be useful for valuing assets, defining representations and warranties and/or negotiating price concessions
- Verification that the transaction complied with your investment criteria.
- Access to experience, expertise and objectivity
- Protection against liability
- Higher transaction success rate
What we do on your behalf
- Strategic Fit Assessment
- Financial Health Assessment
- Technology Assessment
Questions:
When is due diligence conducted? Initial data collection and evaluation commences when an equity investment opportunity first arises and continues throughout the talks.
How is due diligence conducted? Meridian Strategy Group creates a checklist of needed information for the management of the target company to pull together. Financial statements, business plans and other documents are reviewed. In addition, interviews and site visits are conducted. Finally, thorough research is conducted with external sources including; customers, suppliers, industry experts, trade organizations, market research firms and others.
Can you overdo the due diligence effort? Yes. Too much due diligence can offend a target company to the point where they walk away from a deal. It can also result in "analysis paralysis" that prevents you from completing a transaction or provides time for a better competing offer to emerge. A sensible level of trust concerning lesser issues often must balance appropriate investigation and verification of the most important issues. Due diligence is prioritized and executed expeditiously.
What is the cost of due diligence and who pays for it? The cost of due diligence is based on the scope and duration of the effort, which in turn are dependent on the complexity of the target business. These costs are typically viewed as an essential expense that far outweighs the anticipated benefits and the downside risks of failing to conduct an adequate review.