Now get this: the section entitled “Financial Condition” had four items listed (I didn’t even have to count them; they were numbered). That’s sure been my experience: round up four or so items of financial data and that part of your due diligence is …
Were that not bad enough, there was nothing – zero – on HR, nothing on corporate practices or culture, nothing on the sweeping Alpine vistas of corporate complexity.
Now, I have no problem whatsoever with a due diligence list that is focused on this aspect of a deal or that aspect. In fact, I think that’s the way it should be. Just don’t call them more than what they are. It’s a small point; I get that. But the implications are large.
We – deal makers, all of us, regardless of our specialties – need to be honest with ourselves. No one of us is capable of producing an All Points due diligence checklist. And no one should purport to do it. This is too important a topic not to have our acts together.
Suggested Best Practice:
- Create the full sweep of legal, financial, operational, HR, and strategic due diligence procedures (including checklists) founded on specialized expertise from each area.
- Keep those procedures and lists organized separately to better enable dedicated teams to focus on the areas of their purview.
- When assembling a due diligence list focus on the specific area of your professional expertise and label it simply and honestly, e.g., “Due Diligence Checklist: Human Relations,” or “Legal and Organizational Due Diligence Checklist.” To do otherwise is a prescription for confusion and incomplete analysis.
- In your company’s Integration Handbook, keep distinct due diligence checklists organized by specialty area. Ensure that all areas are covered by separate lists. Update those lists during and at the end of each transaction to codify new learning for the future.
I welcome other suggestions on how to manage the process of due diligence. The effective obtaining and using of thorough corporate information in an acquisition is the absolute cornerstone on which a successful deal is built. The stronger that cornerstone, the stronger the prospects for your deal’s success.
It is …