The costs of due diligence during a Merger or acquisition are between two and five percent of the total transaction amount, depending on the sale price of a company, according to succession consulting company Kern System. Two to five percent of the total transaction amount is a lot of money. Often this money is spent on a due diligence that does not uncover the risks, that it should uncover. 

Mergers and acquisitions (M&A) can be a complex process, and one of the key steps in ensuring a successful transaction is the due diligence phase. During due diligence, M&A teams carefully review and assess all aspects of the target company, including financial, legal, and operational matters. In fact, this process is crucial for identifying any potential risks or issues that could impact the overall value of the acquisition. However, conducting due diligence can also present a number of challenges for M&A teams, especially when relying on processes that are not digital. 

Challenge 1: Limited access to information

One of the main challenges M&A teams face during due diligence is limited access to information. This can be especially true for private companies, where financial and operational data may not be as readily available as it is for publicly traded firms. M&A teams may have to rely on the target company's management team to provide relevant information, which can be time-consuming and may not always be completely accurate. Additionally, some information may be considered confidential or sensitive, and M&A teams may have to sign non-disclosure agreements in order to access it. Gaining access to the data in scope is often complicated as well, as most documents are not existing in the form of structured data. Only structured data allows for quick analysis and interpretation. 

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Challenge 2: Time constraints

Conducting due diligence can be a time-consuming process, and M&A teams often have to work under tight deadlines in order to complete the process before the transaction closes. This can be especially challenging if the target company is large or complex, as it may take longer to gather and review all of the necessary information. Time constraints can also make it difficult for M&A teams to thoroughly assess the target company and identify any potential risks or issues. M&A teams that are relying on structured data and that use state of the art analysis tools, are able to execute due diligences up to 50 percent quicker.

Challenge 3: Cultural differences

M&A teams also have to consider cultural differences when conducting due diligence. This can be especially important if the target company is located in a different country or region. Cultural differences can affect the way business is conducted and can impact the overall success of the acquisition. M&A teams may have to work with local advisors or consultants to better understand the cultural nuances of the target company and its business environment. It is crucial to be able to document all collected information in a digital manner and provide this information to the right stakeholders on time. Otherwise, deals are easily at risk. Cultural differences are one of the main reasons why M&A deals fail during the integration. 

Challenge 4: Integration challenges

Another challenge M&A teams may face during due diligence is identifying and addressing any potential integration challenges. This can include issues related to technology systems, processes, and organizational culture. M&A teams need to carefully assess how the target company's operations and systems will fit with those of the acquiring company and identify any potential problems or conflicts. This process is called the Baselining process. This process can be time-consuming and require significant resources, if carried out with spreadsheets and Power Point slides. On the other hand, if teams are able to carry out the Baselining process with an integrated digital M&A suite, they are able to save a dramatic amount of time and resources. A smooth Baselining process is critical for ensuring a smooth integration process post-acquisition.

In conclusion, M&A teams face a number of challenges during the due diligence process, including limited access to information, time constraints, cultural differences, and integration challenges. It is important for M&A teams to carefully review and assess all aspects of the target company in order to identify any potential risks or issues that could impact the value of the acquisition. 

Only M&A teams that can collect and process structured data in one integrated system, will be able to execute due diligences with sufficient depth and speed to not put the deal at risk. By addressing these challenges and using a digital M&A suite, M&A teams can ensure a successful transaction and smooth integration process.


Michael Klawon

Michael Klawon

Scientific Practitioner and LMU x Breitenstein Consulting Project Participant

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Article Topics

M&A Platform
Post-Merger Integration
Due Diligence