Business Acquisitions: Due Diligence

Business Acquisitions: Due Diligence

Due diligence is one of the most critical phases in any acquisition. It ensures that the deal is sound, based on accurate assumptions, and free of hidden risks. The process involves a comprehensive review of the commercial, financial, legal, and operational aspects of the target company. The goal is to identify both risks and opportunities — and to confirm that the valuation and terms of the transaction are built on solid ground.

Why due diligence matters

Due diligence gives the buyer a deeper understanding of the target company’s business and its future potential. It also verifies that financials, operations, and contracts are accurate and reliable. Ultimately, the process provides the confidence needed to move forward — or the insight to renegotiate terms if risks are uncovered.

External advisors and internal experts

Well-conducted due diligence often requires external specialists, such as financial, legal, tax, or technical advisors. In recent years, the scope has expanded to also cover CSR, sales and marketing, and even background or security checks depending on the industry.

It is equally important to involve key employees from the acquiring company. Their industry knowledge can be invaluable, and early involvement helps prepare for integration by giving them first-hand insight into the target’s operations.

Key focus areas of due diligence

Commercial review
Assesses the target’s market position, customer base, competitive landscape, and growth opportunities. Helps confirm the size of the addressable market and identify potential risks.

Financial review
Analyzes financial history, cash flows, assets, and liabilities. The aim is to verify the company’s financial position and uncover hidden risks or commitments.

Legal review
Covers contracts, licenses, IP rights, litigation, and regulatory compliance (including GDPR). Ensures the company complies with laws and that no legal risks threaten the deal.

Operational review
Examines business processes, production capacity, supply chains, logistics, and sales and marketing. The focus is on efficiency, competitiveness, and areas for improvement.

IT and technology
Evaluates IT infrastructure, systems, and cybersecurity. Identifies integration challenges, technical risks, and potential investment needs.

Tax review
Ensures compliance with tax laws by reviewing filings, payments, and any potential tax exposures.

HR review
Covers employee contracts, policies, organizational culture, and labor law issues. Helps assess retention risks and opportunities for workforce development.

CSR and sustainability
Analyzes environmental and social risks, compliance with sustainability standards, and opportunities to strengthen ESG performance.

Intellectual property
Reviews patents, trademarks, copyrights, and other intangible assets to ensure they are properly protected and registered.

Conclusion

Due diligence is a comprehensive but indispensable step in the acquisition process. By combining external expertise with internal knowledge, buyers gain a complete picture of the target company and its risks and opportunities. This foundation is essential for making informed decisions — and for securing a successful acquisition.

At FLB Partners, we guide clients through every stage of the M&A process, from strategy and due diligence to integration. Contact us today to learn how we can support your next acquisition.