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).

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

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!