Mastering Due Diligence

The majority of M&A deals fall apart during the due diligence process. Here’s how to avoid it and secure a successful close.

Mergers & Acquisitions in the staffing industry returned to pre-pandemic levels in 2021, according to Staffing Industry Analysts. But for every successful transaction, there’s a more significant amount of failed deals. All successful mergers or acquisitions go through a grueling due diligence process. During this stage of the M&A engagement, a thorough investigation is conducted on all parties involved. It is a crucial phase that weighs heavily on the conversations, negotiations, and evaluation of two companies to determine if the transaction is feasible and makes sense.

According to Harvard Business Review, the yearly M&A failure rate is between 70% to 90%. There are multiple reasons for transactions to collapse, with the majority of these happening during due diligence. If you’re looking to engage in M&A as either a buyer or a seller, here are some things you may want to consider to mitigate the chances of acquisition failure.

Time kills deals

While buying or selling on a whim is not recommended, it’s important to remember that time is the ultimate deal killer. The M&A process can be incredibly taxing, with many transactions falling apart due to deal fatigue. Many things can cause a deal to fall out when closing is delayed. There could be a sudden economic downturn, the resignation of a key executive, or the cancellation of an important client. The faster it takes for a deal to close, the fewer chances there are for unforeseen circumstances to throw the transaction off course. Make an effort to commit to deadlines and hasten buyer and seller response times to maintain deal momentum.

Get your books in order

The objective of most M&A transactions is for all parties involved to grow financially. Because of this, financial statements and balance sheets are heavily reviewed before closing the deal. If you don’t have a third-party company cleaning up your books for you, it may be best to engage with one before you even decide to buy or sell. Make sure that all numbers are accounted for and that you can properly explain dips and surges in numbers. Trust is extremely important in a merger or acquisition, so ensure that all the data in your statements are accurate and true.

Transparency is crucial

During initial presentations, it’s only natural to see a company showcase only the upsides and try to eliminate the negatives to create a good impression. Despite this, all information will be unearthed once the due diligence process starts. Because of this, withholding crucial data about the company may lead to the detriment of the deal. A lack of sincerity and transparency from either party could be enough for a transaction to fall through the cracks.

Create a due diligence strategy with an M&A expert

Working with a third-party M&A team is best when going through such a critical time in your business. An M&A advisor knows the ins and outs of a transaction and can prepare you for the due diligence process even before speaking with potential buyers and sellers. Because M&A deals vary per industry, make it a point to work with an advisor with extensive experience in transactions in the staffing & recruiting niche.

Only 10% to 30% of M&A deals succeed. This may be a steep ratio, but aptly preparing for due diligence through the steps above will definitely increase your chances at a lucrative deal.