Diligence reports are a key aspect of our business. Given that we offer due diligence-as-a-service (DaaS), every project we complete culminates in diligence reports we present to clients. Clients use those reports to decide how to proceed with a merger or acquisition. The better our information, the more informed the client’s decision.
As useful as diligence reports are, they do not tell the whole story. They cannot. Diligence reports are based on hard data and analysis of a number of business intangibles. But they can only offer a glimpse of what a company currently looks like compared to what it might look like in the future. It cannot accurately predict what is coming. There are just some things due diligence cannot tell you.
Here are five things you typically won’t learn from due diligence reports:
1. What the Road to Success Looks Like
We often compare mergers and acquisitions to traveling along a road with only a general destination in mind. There are landmarks and attractions along the way. The journey begins once the merger or acquisition is complete. What will the road look like? No one knows.
The road to success could be mostly straight and narrow. It could be long and winding. It is likely to have some relatively flat spots as well as a good selection of hills and valleys. There may even be mountains to climb and bridges to cross. That is the thing about the future. You can only make an educated guess. You really don’t know what it holds until you get there.
2. If a Deal Is Future Proof
Due diligence does its best to uncover areas of concern. But thanks to limited data and an inability to see the future, there are no guarantees that a deal is a future proof. Your company could go through with a very strong acquisition only to discover that its long-term consequences were not what management anticipated. It may be necessary to offload that company at some point down the road.
3. How Quickly to Proceed
In the world of mergers and acquisitions, timing is often more important than speed. Unfortunately, diligence reports cannot really tell you how quickly to proceed. You have to look at extenuating circumstances and a variety of environmental factors to figure that out. Diligence reports can tell you whether or not moving forward is a good idea, but they cannot tell you how quickly to move forward.
4. How Smoothly the Transition Will Go
Due diligence information can tell you a lot about a company’s management and culture. Still, there are plenty of variables due diligence doesn’t uncover. Blame it on the simple fact that companies don’t often reveal the negative aspects of their businesses when looking for suitors. Your company might end up in a transition that is anything but smooth. The deal looks good on paper, but completing the transition ends up being more difficult than anticipated.
5. Whether or Not the Target Is Ready
Over the years, more than one deal has ended up being more difficult than necessary because the target company wasn’t ready for the transition. Even though they were actively looking for suitors, they were not actively preparing to be acquired. There is a significant difference between the two.
We offer DaaS because we understand just how important due diligence is to successful mergers and acquisitions. We wish diligence reports could answer every question to the extent of absolutely guaranteeing success. But that is not the case. There are just some things diligence reports cannot tell you. That’s where experience, intuition, and lots of sound advice come in.