Business Risk Due Diligence

M&A Transactional Due Diligence

The Real Reasons Most M&A Deals Fail

Here’s an alarming statistic to be aware of if you’re planning a merger or acquisition (M&A) in a new market, especially if it’s overseas…between 70% and 90%.

It’s quite a shocking number when you think about it.  Even more so when you consider that even if an M&A does go through, most businesses could still lose millions in a deal’s value because they fail to conduct proper due diligence before the deal is closed.

While most companies conduct legal and financial due diligence they often fail to conduct due diligence on the people behind the target company, they often have little to no on-the-ground business intelligence on the company to be acquired, and even less information regarding political and economic conditions in the region the company is either based in or has key operations in.

Companies spend more than $2 trillion on acquisitions every year, yet the M&A failure rate is extremely high.

So ask yourself…  Do you have a full understanding of the potential geopolitical and economic risks involved in your merger or acquisition?  Do you have a plan to navigate these risks when they inevitably occur?

If not and your company is preparing to merge or acquire another business, you need to do your due diligence on the other company.   Has anyone performed enhanced due diligence on the executive team of your new company besides cursory background checks?  Are there sanctions on the vendors or subcontractors the company uses in different countries?  Is there any hidden information that could seriously jeopardize the outcome of your proposed business transaction?

You need to be able to answer all of these questions and more before you go through with any purchase or merger.  Otherwise you risk irreparably damaging your own brand’s reputation if you acquire a company that has a history of illegal activities such as fraud or bribery.  

If you buy a company and only find out later that they’re embattled in lawsuits or government inquiries, you can end up spending millions more on your M&A deal.  Or you might find out they have not properly disclosed everything about their financials and are trying to hide significant losses or payments to less than reputable vendors or business partners.  The same goes for the vendors and subsidiaries the company works with, who could also be operating legally or may not have disclosed everything. 

It’s vital that you know exactly what risks you’re assuming by completing your M&A deal.  Infortal can help you learn who you’re really acquiring or merging with by conducting business intelligence and doing deep dive due diligence into the executives, so you can better understand the current and future landscape as well as the history of the business you’re joining or buying.  That way you’ll be going into the deal with your eyes open. 

M&A Transactional Due Diligence

Major or complex financial transactions require specialized due diligence to reveal serious issues which can impact the deal outcome.  Most due diligence occurs before, during or after Mergers and Acquisitions (M&A) deals. This may include looking at deal size, successor liability issues, and whether the deal may even be financially feasible.

Alternatively, more information about a deal may allow for improved opportunities and can afford your team options to secure a competitive advantage.

What information do we look at?

Infortal investigates multiple areas of deal vulnerability, business and executive team reputation, previous affiliations. We assess potential risk exposures in M&A deals to gain a clear understanding of the beneficial ownership and relationship between executive teams and, in some cases, other business entities.

Examples of information we investigate

  • Corporate structure

  • Corporate taxes and registration

  • Directors & Shareholders

  • Parent companies & subsidiaries

  • Key Executive Team

  • Financial research

  • Beneficial ownership

  • Government and political affiliations

  • Executive ownership

  • Board members

  • Business registration

  • Corporate taxes

  • Government sanctions

  • Global KYC AML watchlists

  • Government affiliations

  • Political affiliations

  • Reputation assessment

  • Property and asset ownership

  • Site visit confirmation

  • Deep, dark & historical web search

  • Social media search

  • Open source intelligence research (OSINT)

Infortal’s global network of affiliates provide your legal, finance and accounting teams with key intelligence with which to more effectively evaluate a deal and to determine whether further assessment, restructuring or renegotiation of terms may be desirable.

What should we look for in M&A due diligence

M&A due diligence typically includes extensive legal and financial due diligence, but often business buyers believe they only need to conduct a routine background check to complete their due diligence process. This creates only a very basic view of an executive’s or company’s history. Fewer than 1% of business risks can be identified with employment-style background checks. Yet people often represent the greatest risks in business.

To learn more please download the guide for investors to identify M&A risks.

Why does my business need M&A due diligence services?

M&A Due Diligence services help investors and buyers to avoid problems pre and post acquisition. Executives are considered to represent as much as 30% of the value of a business, however, if the buyer or investor knows only the most basic information about the key executives, then they may take on risks that could jeopardize the financial stability, performance and long-term viability of the business or the acquisition itself. If the executives are corrupt or hiding critical information about the company, its revenues, profitability or clients then the deal may fail or worse incur sanctions, fines or penalties by regulatory agencies and these in turn could lead to law suits by stakeholders for non-disclosure of critical data.

Contact us now to learn how we can assist you with M&A Transactional Due Diligence

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