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How great commercial due diligence increases deal success

Written by Marnik Willems

70% of mergers & acquisitions fail. While the exact number varies depending on the source and the definition of ‘fail’, studies agree that the majority of deals do not add the expected value. Does this mean you should stay away from any M&A projects for your company? Of course not! A decent deal execution, financing and well executed post-merger integration can all increase the success rate. In this article we will focus on first things first: due diligence.

Due diligence in the M&A process

A successful deal often starts in the very early stages of the M&A process with an M&A-strategy that is perfectly aligned with your corporate or business strategy. The rationale and desired outcome of the deal should be clear from the outset. Market expansion in new geographies to boost revenues with 15%? Gaining control over an upstream part of the supply chain? Different objectives need different approaches.

However, one thing will always have to be part of the next steps: thorough due diligence. The goal of a due diligence is having a 360° view on the target from different points of view. A comprehensive due diligence includes financial, legal, technical, and commercial scans. BrightWolves supported various corporate and private equity clients in the latter.

Turning a commercial due diligence from good to great

A good commercial due diligence takes into account all the information that can be mapped on two axes: internal versus external and historical versus forecasted. All four quadrants will provide useful information for a commercial analysis: historical performance and growth, a 5-year business plan, market growth etc.

While this might be a good starting point, BrightWolves goes beyond this two-dimensional approach. At BrightWolves we work around three building blocks that form an essential part of a great commercial due diligence.

1. Market & Competition To understand the (commercial) performance of the target, a firm knowledge of the underlying markets and their key drivers is needed. Answers are needed on, among others, the following questions:

  • How did market size and shares evolve over time?

  • What does the competitive landscape look like and how does the target position itself in it?

  • What is the Selling Proposition (USP) of the target and how unique is it compared to competitors?

  • How are products or services priced?

2. Commercial Performance

Commercial performance is all about revenues. It is important, though, to look at the drivers behind the aggregated numbers. Top line revenue is merely the tip of the iceberg. You should always look for the answers to the following questions to know what’s hiding below the surface:

  • What is the quality of the customer base and segments? Is there upsell or cross sell potential?

  • How is the commercial organization performing? How are opportunities created and closed?

  • What does the revenue pipeline look like and how does it compare to the budget?

  • What are the key growth drivers?

3. Value Creation The last big block is to take a deeper look into the potential value creation. Most of the times, building the business case is an exercise on its own. Cross checking assumptions and validation with new insights from the due diligence process can strengthen the base for solid decision making. What questions should you ask here?

  • What are potential risks and possible mitigations - including transition and sustainability risks?

  • What is the synergy potential and does it make sense based on the commercial information?

  • Who are potential buyers at the time of exit?

While these questions might seem straightforward , it is important to know that a structured, pragmatic and data-driven approach are essential for deep understanding and for making your M&A a success.

Are you looking into acquiring companies and need due diligence support? Don’t hesitate to reach out. We are happy to discuss how BrightWolves could help.


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