Avoid acquisition stress: 3 advantages of a Commercial Due Diligence

As mentioned in a previous post, doing a Commercial Due Diligence is key to limiting the risks involved in a takeover.

A CDD looks at the customers, product pipeline and turnover & margin contribution so as to understand the commercial basis of a company and to anticipate the sustainability of the success. This way, a too strict assessment of the acquisition target (based on e.g. financial or legal factors only  can be avoided and the potential added value may be assessed in a more objective manner.

In more concrete terms, the benefits could be summarized as:

1. Increased success rate of the acquisition & closing a better deal

A well-founded analysis of the underlying commercial success factors may quickly reveal the up and downsides of a business plan.

2. Objectivity

  • Factual arguments can be used for negotiations and may lead to a revision (or validation) of the transaction price.
  • All stakeholders receive an independent second opinion that is not influenced by the personal motivation(s) of management.

3. Operational efficiency & improvements

  • Based on the audit, areas of commercial improvement can be identified, both in the short term (quick wins) and in the long term.
  • Direct impact on the topline result by improving or activating the so-called value drivers. Examples: pricing & trading terms, innovation pipeline, go-to-market strategy, gaps in the product portfolio, customer approach, …

It is clear that a commercial due diligence is not just beneficial to your peace of mind (reduced chance of a failed takeover) but also to your wallet (identification of quick wins and upsides).

Do not hesitate to contact us for more questions, or read the previous article here for an answer to the how and how much of a professional CDD!

Written by Jan De Lancker, practice leader Growth Strategies & CDD

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