Are you wondering why due diligence is the critical step in any business acquisition?  The failure to conduct thorough due diligence is the primary reason mergers and/or business acquisitions fail.  Mergers and acquisitions are not simply big words; they are often complex deals that involve extensive preparation, long negotiations and detailed contracts covering everything from executive control to third-party interactions.  Due diligence is the process which ensures all the questions have been asked, all the details have been verified, all the representations and warranties have been thoroughly vetted and all contingent liabilities have been researched and identified.  Having the right professionals on your side can literally make or break the deal.

Why Do Most Mergers and Business Acquisitions Fail?

Research varies from one source to another, but no matter who you get your information from anywhere from 50 to 85 percent of mergers and business acquisitions fail.  Due diligence is the critical step in any business acquisition to increase these odds and complete a successful acquisition.

Success most often comes down to the nitty-gritty details, according to most analysts and our own extensive experience in these transactions.  Failure to conduct proper due diligence is the primary reason mergers fail.  Others include poor financials and accounting preparation, loss of business momentum, debt and post-merger integration problems (getting people from different teams to work together going forward).

There may be cultural issues based upon corporate culture or physical location which affect a smooth integration of the business(es).

Overpayment is one of the significant contributors to a future failure, especially in transactions which involve purchase through a combination of cash and stock.

Hidden financial issues are another common challenge.  Some companies attempt to position themselves with strength when they are actually facing substantial financial and/or legal challenges.

The momentum of a transaction in process itself (the “deal”) and debt can even play a role. Some people are afraid to say what they really think once a deal is underway. We talked above about how complex these deals can be; they are expensive as well. When a lot of money has already been spent, it can be difficult for some people not to want to keep the process moving.

Is it really possible to integrate the operations of two separate entities into an efficient whole?  The failure to develop an effective short and long-term business plan for the acquisition, establish accurate valuation, verify the books, investigate all assets and debts as well as contingent financial and legal liabilities leaves little to no foundation for success going forward.  Lack of a thorough due diligence and integration challenges lead to disgruntled customers, suppliers, employees and ultimately shareholders.

Due Diligence is the Critical Step in Any Business Acquisition

Due diligence is the critical step in any business acquisition in San Diego or Southern California.  In the broadest sense, the term means that there is a duty to investigate before making a deal or signing contracts.

The Watkins Firm has served the San Diego and Southern California business and healthcare communities for over four decades.  We’ve been through literally thousands of these transactions.  Businesses of every size and scope.

We have developed the processes and checklists necessary to ensure proper due diligence and ultimately a successful outcome for our clients.  We know what questions to ask.  We know virtually every detail to verify.  We know how to work with a team of experts to validate what is in front of us, establish an accurate valuation and help our client(s) to clearly understand what is in front of them.

Just because a company has issues or challenges doesn’t mean they aren’t a good acquisition target.  If you know what they genuinely are then you can develop and implement plans to fix them.  The reason almost two-thirds of mergers and acquisitions fail literally comes down to a lack of a thorough due diligence.

Why is our own success rate so high?  How can the Watkins Firm contribute to the success of your merger or acquisition?  We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.