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Corporate development due diligence is the process through which companies evaluate strategic transactions involving companies or assets. Corporate development due diligence provides insights into the upsides and downsides of a transaction, enabling companies to better understand whether the transaction will contribute to their innovation and growth.
As this description alludes to, it’s an extremely important component of the strategic transaction process for any company considering non-organic growth.
DealRoom helped dozens of crop dev teams to organize diligence and below we look at some of the best practices for corporate development due diligence in detail:
1. Leverage Technology
Technology tops the list of essentials for effective corporate development due diligence. As businesses grow increasingly complex—a reality now unavoidable in every industry—the demands for comprehensive due diligence information also escalate.
To properly manage the three Vs of big data—volume, velocity, and variety—a technology-driven solution is indispensable. Before diving into transactional due diligence, it’s crucial to first vet the technology solutions that will make the process effective.
Fortunately, the industry offers a wide array of specialized software, ranging from communication tools to project management platforms, as well as various marketing and logo-making tools (follow the link to try one). Additionally, there are many specific tools designed to assist corporate development teams in their work.
2. Instill Clear Vision
There are a lot of CXOs that will skip over this paragraph as soon as they read the heading. They’re likely to include a cohort who mistakenly believe that having a vision is the soft skill component of corporate development due diligence.
Without a vision, M&A becomes ‘catch as catch can’ – a game of opportunistically chasing after attractive targets that become available at the time that you happen to be acquiring. Having a clear vision – knowing what your strategy requires and not compromising until it can be obtained – is the best way to avoid this.
3. Plan the Integration Phase Early
One way of ensuring that a clear vision is maintained throughout the due diligence process is to begin planning the integration phase early.
Everything revealed in due diligence should also be seen as a piece of the post-merger integration puzzle.
Different software architecture that could cause conflict? Begin looking at how it can be integrated as soon as the realization is made.
Subtle cultural differences? Assuming it’s not too great to be a deal breaker, begin activating change management professionals as soon as possible.
4. Develop Deal Criteria
Possessing a clear vision informs the development of the deal criteria.
Very often with due diligence, this phase involves creating a set of deal-breakers: Issues that arise in due diligence that will bring the deal to a halt, regardless of how well other aspects of due diligence are shaping up.
Examples of deal breakers could include a company generating too much of its revenue from a single account, not possessing IP of any long-term value, or some unsustainable practices uncovered at the due diligence phase.
5. Hone the Plan
Due to the sprawling nature of modern due diligence alluded to in the above paragraphs, planning is needed.
Again, this is where the right technology platform will make the process more efficient. With the right solution, new tasks, documents, and contributors can be integrated into the existing flow, rather than dragging the due diligence team in a whole new direction.
Technology will also enable you to establish important parameters for due diligence, including around timelines, budgeting, and risk management.
Above all, planning will ensure that your resources are maximized for better due diligence outcomes.
6. Structured Analysis
The analysis phase should incorporate everything that we have outlined until this point, from using technology at every point of the analysis, to ensuring that the overall vision is never lost.
This can seem tedious, but the process isn’t supposed to be stimulating – rather, it’s goal is to generate value from the transaction.
The more times that you conduct structured analysis, the better your framework for analyzing new transactions will be, the faster it becomes, and the faster you can generate that value.
7. Use Findings to Strengthen Negotation Position
When negotiations arrive, well conducted due diligence should put you in a much stronger position to negotiate.
In some sense, it should let you know the target better than the target’s owners. Just remember that due diligence is not a stick to beat them with – rather, a collection of objective information that can inform the final negotiations and deal structure.
Remember that providing you with transparency was an act of respect on behalf of the target company owners and that respect should be reflected in your own dealings with them.
