will the value of your company be enhanced by this acquisition?

That is the overarching concern that guides our due diligence at Plante & Moran.  It’s why we bring a holistic view to the process, incorporating far more than financial data.  Approximately one third of due diligence investigations uncover serious problems – potential deal breakers.  When conducting due diligence we consider the following aspects to assure a successful transaction: 

Strategic Due Diligence

This boils down to a single question:  Does the acquisition make sense?  If it doesn’t pass strategic due diligence, there’s no point in continuing the process. 

In order to make strategic sense, the due diligence must consider the acquisition from several points of view.  Who are their customers?  What is the strength and longevity of the market they serve?  What are the barriers to entry?  What do you hope to accomplish by acquiring this company?  If the potential acquisition passes strategic due diligence, then we conduct the other due diligence. 

Operational Due Diligence

We look at the transaction to determine what you can do to realize improvements in productivity and profitability.  This helps us to determine how where profits can get to, how they will get there and how much investment it take to achieve.  In manufacturing plant, for example, we examine work centers, material flow, scrap generation and inventory levels, employing Lean Manufacturing principles to determine maximum profitability.

A purchase price based on a multiple of earnings may include certain operations inefficiencies.  Operational due diligence will define this potential along with the cost of implementing the necessary improvements in efficiency. 

Financial Due Diligence 

This, the third leg of the Plante & Moran due diligence process, is sometimes the only due diligence performed by other consultants.  It analyzes, qualitatively and quantitatively, how an organization has performed financially to get a sense of earnings on a normalized basis.  We look at the anticipated performance of a business as represented by the seller, look at the underlying assumptions they’ve used in preparing their projections, and ensure they’re reasonable and objective.

In addition, financial due diligence analyzes the asets and liabilities to be acquired, making certain to identify the liabilities that have been incurred by the seller for purchases of inventory or services that occurred prior to the closing date.

Financial due diligence also looks at whether federal and state taxes have been filed appropriately by the seller. 

IT Due Diligence

Technology is often a key component of merger and acquisition activity.  It’s important to assess the current level of technology and to assess the amount of investment required to bring it up to date.  Careful planning early in the transaction will simplify the post-merger integration of information systems.