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M&A due diligence checklist for public and private deals

Updated: Apr 18

Mergers and acquisitions (M&A) play a crucial role in the corporate world, allowing companies to expand their market presence, enhance competitiveness, and achieve strategic goals. However, these transactions are often complex and rife with risks. One critical aspect of M&A is due diligence, a comprehensive investigation and assessment of the target company's financial, operational, legal, and regulatory aspects. Due diligence is essential in both public and private deals, as it helps buyers identify potential pitfalls, make informed decisions, and maximize the chances of a successful transaction.

Pre-transaction due diligence Before diving into the due diligence checklist, it's essential to understand the various stages of the M&A process. Pre-transaction due diligence sets the stage for a successful deal. This phase involves initial research and assessment to identify potential targets and determine the strategic fit. Here are some key considerations:

Strategic alignment

  1. Define your strategic objectives and reasons for pursuing the M&A deal.

  2. Identify potential targets that align with your long-term vision and goals.

  3. Evaluate the market dynamics and competitive landscape to identify suitable candidates.

Preliminary financial analysis

  1. Perform a high-level financial analysis to assess the target's financial health.

  2. Review the target's revenue, profitability, cash flow, and debt levels.

  3. Consider any significant financial red flags or irregularities.


Legal and regulatory framework

  1. Understand the legal and regulatory environment in which the target operates.

  2. Identify potential legal or compliance issues that could impact the transaction.

  3. Determine if there are any pending litigations, regulatory investigations, or disputes.

Public deal considerations Public M&A transactions involve the acquisition of a publicly-traded company's shares or assets. The due diligence process for public deals includes additional considerations due to the transparency and reporting requirements associated with publicly traded entities.

Public disclosure

  1. Review the target company's public filings, including annual reports, quarterly statements, and proxy statements.

  2. Analyze the accuracy and completeness of the financial information provided to shareholders and regulators.

  3. Identify any material events or disclosures that may affect the deal.

Shareholder approval

  1. Understand the target's shareholder base and the requirements for obtaining shareholder approval.

  2. Evaluate the level of support or opposition from major shareholders or institutional investors.

  3. Assess the potential impact of proxy advisors and activist investors on the deal.

Regulatory approvals

  1. Determine the regulatory approvals required for the transaction, such as antitrust clearance or approvals from industry-specific regulators.

  2. Prepare for potential regulatory challenges or conditions imposed on the deal.

  3. Consider the timeline and costs associated with obtaining necessary approvals.

Private deal considerations In contrast, private M&A deals involve the acquisition of privately-held companies, which typically have fewer disclosure requirements. However, private deals come with their own set of challenges and considerations.

Access to information

  1. Private targets may have limited publicly available information. Establish a clear process for obtaining access to their financial records and other critical data.

  2. Negotiate confidentiality agreements to protect sensitive information during due diligence.

Valuation and pricing

  1. Determine the appropriate valuation methodology for the private target.

  2. Assess the target's financial statements, contracts, and intellectual property to derive an accurate valuation.

  3. Consider any earn-outs or contingent payments based on future performance.

Operational due diligence Operational due diligence is a crucial component of the M&A due diligence process, regardless of whether the deal is public or private. This phase involves a deep dive into the target company's operations, management, and business strategies.

Management team assessment

  1. Evaluate the competence and experience of the target company's management team.

  2. Consider the potential for key employees to depart after the acquisition and its impact on the business.

  3. Identify any conflicts of interest or undisclosed relationships within the management team.


Integration planning

  1. Develop a comprehensive integration plan that outlines the steps and timeline for merging the two companies.

  2. Identify potential integration challenges, such as cultural differences, technology integration, and workforce consolidation.

  3. Assess the costs associated with integration and develop a budget.


Customer and supplier relationships

  1. Review customer contracts and relationships to assess the customer concentration risk.

  2. Evaluate supplier relationships and the impact of the transaction on the supply chain.

  3. Identify any potential disruptions or risks to customer or supplier relationships.

Financial due diligence Financial due diligence is a core component of M&A due diligence and involves a detailed examination of the target company's financial statements, performance, and financial health.

Financial statements analysis

  1. Review historical financial statements, including income statements, balance sheets, and cash flow statements.

  2. Analyze trends in revenue growth, profitability, and working capital management.

  3. Identify any one-time charges or non-recurring expenses that may impact financial performance.

Quality of earnings

  1. Assess the quality of the target's earnings and the sustainability of its profit margins.

  2. Examine the consistency of revenue recognition policies and accounting practices.

  3. Identify any hidden liabilities or off-balance-sheet items that could affect the deal's financial impact.

Working capital assessment

  1. Evaluate the target's working capital needs and the adequacy of its current assets to meet liabilities.

  2. Consider the implications of working capital adjustments in the purchase agreement.

  3. Identify any potential working capital challenges post-acquisition.

Legal and regulatory due diligence Legal and regulatory due diligence is essential to uncover any legal risks or issues that may impact the M&A transaction.

Contracts and agreements

  1. Review all material contracts and agreements, including customer contracts, supplier agreements, leases, and employment contracts.

  2. Identify any change of control provisions or clauses that could affect the transaction.

  3. Assess the target's compliance with contractual obligations.


Intellectual property

  1. Evaluate the target's intellectual property portfolio, including patents, trademarks, copyrights, and trade secrets.

  2. Verify ownership and the absence of any pending or potential intellectual property disputes.

  3. Assess the strategic value of the target's intellectual property assets.

Environmental and Regulatory Compliance

  1. Conduct an environmental due diligence to identify potential environmental liabilities or regulatory violations.

  2. Assess the target's compliance with industry-specific regulations and permits.

  3. Consider the costs and liabilities associated with remediation or compliance efforts.

Litigation and disputes

  1. Identify any pending or historical litigation, arbitration, or regulatory investigations involving the target.

  2. Assess the potential financial and reputational impact of unresolved disputes.

  3. Develop a strategy for managing and resolving outstanding legal issues. M&A due diligence is a meticulous and multi-faceted process that requires a comprehensive checklist tailored to the specific characteristics of the transaction, whether it's a public or private deal. By following a comprehensive due diligence checklist and engaging the right professionals, companies can enhance their chances of executing a successful M&A deal, whether it's in the public or private sector.

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