The success of any merger and acquisition opportunity hinges on a clear understanding of the target company’s commercial viability – its ability to generate profit and ensure sustainability. This knowledge is gleaned from a complex process called commercial due diligence. However, this process can be manageable only with a precise roadmap. That’s where a checklist comes in, empowering you to cover all the essential aspects of the business, from operations and finances to risks and market share. With all the data in one place, in the correct order, you can make informed decisions about a business transaction, scrutinizing the target business’s position against competitors, customer data, feedback, and more.
- Essential checklist items of commercial due diligence
The commercial due diligence checklist includes various aspects to give a comprehensive and in-depth view of the target organization’s functioning. So, the company overview will be one of the first things to consider in this process. It will lead you to details like business size, ownership status, history, hierarchy, values, and mission. The business’s financial performance is another critical consideration to realize if it makes a sensible deal. In this area, you will evaluate its financial performance by looking at profits, revenue, liabilities, assets, cash flow, growth rate, and other signals. You also want to analyze its market condition based on trends, competitiveness, position, size, and improvement. In this context, knowing about the company’s customers is also necessary. You want to learn about demographics, loyalty, feedback, etc.
The checklist will also include a section on products or services to investigate their quality, profitability, USP, etc. Another area of focus should be the business’s operational efficiency. You can determine this by examining the company’s logistics, technology, facilities, etc. Some industries demand strict adherence to regulations. Think of healthcare, for example. Still, every good or ethical business will have clean legal and regulatory grounds. Or, there can be some genuine bottlenecks.
Nevertheless, learning about compliance issues is a must to avoid any unwanted surprises later. After the acquisition, you may want some old employees to stay with the entity because of their experience and skills. You can obtain this insight by examining its management and staff. It will also reveal the company’s culture, which may otherwise get overlooked and become a sore point later.A SWOT analysis gives a peek into the target business’s weaknesses, strengths, threats, and opportunities. You also want to see how the company will likely perform and its plans. So, considering future projections also makes sense.
- Further breakdown of the due diligence checklist
You can create categories like company overview, financial performance, market analysis, customer analysis, product or service evaluation, operational efficiency, legal & regulatory compliance, etc. Under company overview, you can have three critical parts – 1) background, mission, and values; 2) structure and ownership; and 3) operations’ size and scale. Operational efficiency can be judged based on the analysis of the logistics, facilities, operational processes, bottlenecks, use of technology, etc. The legal and regulatory scene will be easy to grasp by verifying different company filings and licenses, legal cases, etc.
There are multiple angles and areas to cover under commercial due diligence. It can be an elaborate and complex system, but its efficiency outweighs everything else.
