The mergers and acquisitions industry has been stagnating for the past few years. Rising interest rates, geopolitical uncertainty, and global economic struggles slow the M&A activity. According to Bain & Company, 2023 global M&A volume plummeted 40% year to date.

These conditions force buyers, especially private equity funds, to restrain themselves from high leverage and big deals. Dealmakers adapt M&A strategies to current challenges and emphasize integrated due diligence to survive the turbulence. This post features a deep dive into integrated due diligence and 60 related questions to ask before signing an M&A deal.

Key aspects of integrated due diligence

The M&A success depends on several factors, yet the main one is quality due diligence. The opposite is true — 60% of executives link deal failure to inadequate due diligence that overlooks deal breakers and potential risks during post-merger integration. It often happens when buyers consider due diligence as a formal way to access the target’s finances and ensure proper insurance. 

Meanwhile, successful dealmakers emphasize value creation through an integrated due diligence approach, reviewing connections and interdependencies between business functions:

• Financial due diligence. Financial statements, assets and liabilities, historical performance, debt obligations, and other aspects are critical during due diligence. Dealmakers should understand how value drivers in talent, operations, and taxation impact financial performance.
• Tax due diligence. Tax obligations, taxation policies and records, and post-deal tax implications should be reviewed. It’s important to consider tax load while building financial projections, planning synergies, and assessing potential value drivers.
• HR due diligence. HR policies, key talents, employee turnover, and workspace culture should be under comprehensive evaluation. Successful dealmakers evaluate how key talent, employee compensation, and HR risks affect operations, cybersecurity, and financial performance.
• Cybersecurity due diligence. IT security, incident history, cybersecurity policies, employee training, data room usage, and other security aspects should be in the due diligence scope. It’s crucial to understand how workspace culture and operations impact IT security vulnerabilities and financial performance.
• Operations and synergies due diligence. Supply chains, operational facilities, quality controls, and other aspects should be evaluated. It’s important to identify how potential synergies and operational weaknesses impact workforce dynamics, cybersecurity, and financial performance.

The value of integrated due diligence

Integrated due diligence reinforces the buyer’s decision-making potential as it evaluates the target company’s systems and key dependencies against the following:

• Strategy. The buyer can adjust, refine, or reroute long-term post-merger strategies based on systemic risks and opportunities. Or, the buyer can cancel further due diligence investigation, questioning the deal’s strategic fit, feasibility, and profitability in the first place.
• Operations. The buyer can optimize operations based on HR, tax, financial, and cybersecurity risks and opportunities.
• Profitability. Integrated due diligence allows for identifying and seizing correct value drivers to maximize customer retention, operational efficiency, and business growth.

Key questions to ask before signing an M&A deal

Dealmakers should ask themselves several questions to facilitate integrated due diligence. Carefully working on these 60 due diligence questions helps to build a 360-degree view of the deal’s potential and maximize success chances.

What makes this company the right target for the deal?

1. How does this deal align with our strategic objectives? What strategic gaps does this target company fill: service improvement, customers, talent, expansion options?
2. Does this company provide unique assets, potentially disruptive new technologies, and intellectual property that make it an attractive target in the current environment?
3. How does this acquisition target compare with similar companies in the industry? What synergy benefits exist in this transaction? Do they make it more beneficial than other potential targets?
4. What market trends and industry dynamics make this acquisition beneficial for our strategic objectives?
5. Are there external factors, such as regulatory changes, legal issues, and macroeconomic trends that make this acquisition beneficial (or detrimental)?
6. Does this specific deal fit into our M&A strategy? Does this target business have the potential for successful integration with other planned deals?

Does this acquisition fit into our investment strategy?

1. What are the key assumptions underpinning this acquisition? Which investment and risk tolerance criteria does this target company satisfy?
2. How does this target company’s financial performance meet our return on investment (ROI) objectives?
3. Which business functions of the target company contribute to the expected ROI the most, and which carry the highest risk?
4. How does the deal structure (all-cash or all-stock) affect our post-merger financials?
5. Does this investment case require additional funding? If yes, how will we access this funding?
6. Does investment by acquisition bring more ROI than organic growth investment?

Can this company generate quality earnings consistently?

1. Do we have access to the company’s balance sheet and other financial statements? Do they look healthy?
2. What are the historic revenue trends, and are they consistent? Can we notice significant fluctuations over a long period?
3. Were historical revenues and past contracted future earnings the result of the company’s performance or market conditions? What products and services performed the best in a given period?
4. Did any non-recurring items (such as asset sales) distort the historical revenue records?
5. What is the company’s operating margin? What aspects and circumstances make the operating margin high (or low)?
6. How does the change in business variables (sales, cost of production, pricing) impact revenue generation?
7. What is the company’s EBITDA? Are there contingent liabilities impacting EBITDA in the near future?
8. Does the target company have tax liabilities or issues with tax returns? How do they affect the integration process and particular business functions, including operations and human resources?
9. What are the biggest challenges for consistent revenue generation?

Does this acquisition have the potential for attractive returns?

1. How does this acquisition’s ROI compare with similar investments?
2. How does the expected purchase price compare with similar deals?
3. What are the drivers for the acquisition price?
4. What is the payback period for this acquisition, and how does it align with our M&A goals?
5. What is the risk-return tradeoff of this acquisition? Does it align with our risk tolerance?
6. Does the projected ROI depend on post-merger synergies? How feasible will future success be if synergies are realized partially?
7. Are there competitive advantages positioning this acquisition above the average industry return?
8. How do operational risks and improvements affect the ROI?
9. How are cybersecurity risks interconnected within business functions, including operations, marketing, and HR?
10. How do cybersecurity risks impact the projected revenue after post-merger integration?

How reliable is the target company’s leadership team?

1. Do we have a track record of the target company’s management team? 
2. What is the background of each executive? Were reputational issues addressed properly in the past?
3. What are the strengths and weaknesses of each management team member?
4. How does the target company’s culture compare with ours? Are there distinctive cultural benefits or issues to be addressed during the acquisition process?
5. Do we have insights into the management team’s leadership style, strategic vision, and ability and willingness to execute the post-merger integration plan?
6. Are we confident in the management team’s abilities to drive acquisition value?
7. What are our ownership considerations? Do we have a succession planning strategy in place?

Does anyone else want to buy this company?

1. How fierce is the competitive landscape for this deal? How many potential buyers are there?
2. Does the target company’s management team communicate with other buyers?
3. What advantages differentiate us from other potential buyers?
4. How does the competition affect the acquisition price? 
5. What deal structure can we offer to secure the acquisition?
6. Do we have a negotiation strategy to secure the deal?

How do we deal with the target company’s product strategy?

1. What is the target company’s product strategy, and how does it align with our goals?
2. What is within and outside of the target company’s control regarding products and services? Do its products and services have reputational issues?
3. Does the target company have a product development pipeline? How does it affect the anticipated synergy benefits, and how can we integrate it with our products and services?
4. What are the target company’s sales channels, customer base, and market share?
5. What selling points do the target company’s products and services have? What are the target company’s customer pain points?
6. How does integrating with the target company’s products and services affect our customer base, sales, and market reach? Are there opportunities and drawbacks to merging specific products and services?
7. Will the expanded business solve the problems of our customers? Do we expect an inflow or outflow of customers in the post-deal phase?
8. How does integration affect the target company’s customer base?

How will we manage employees after signing the deal?

1. Do we plan to retain key employees and talents within the acquired company? What impact does this have on our integration processes?
2. Do we plan to reduce our HR financing in the post-deal phase? How does that affect our employee turnover, and do we have efficient strategies to retain our talents post-acquisition?
3. How do the post-merger employee dynamics affect operations and revenue generation?
4. How do we address the cultural differences while integrating our business with the target company?
5. How do we manage employee roles and workforce engagement during post-merger integration?
6. How do we manage employee compensation during post-merger integration? How will compensation changes affect employee retention?
7. What communication strategies do we use to address the target company’s employee concerns?
8. Do we plan to integrate our employee systems, and how do they affect data security?

How virtual data rooms facilitate integrated due diligence

According to Accenture’s Digitizing M&A report, 90% of executives believe new M&A capabilities drive deal success. Successful dealmakers benefit from advanced software solutions, such as virtual data rooms (VDRs) that automate and accelerate diligence investigation. Dealmakers can facilitate due diligence and reduce IT costs by as much as 30% due to the following benefits of virtual data rooms:

• Enhanced security. VDRs minimize data security issues during the transaction due to granular access control, dynamic watermarking, and information rights management.
• Efficient collaboration. The diligence team can exchange sensitive information, create a shareable diligence checklist, and work on files in one synchronized platform.
• Reduced administrative burden. Built-in file redaction, version control, bulk file management, automated indexing, and Q&A workflows simplify issue tracking, communication, and task management.
• Comprehensive reporting. Full audit trail and auto-generated drill-down reports make it easy to analyze due diligence findings, address issues, and track the entire M&A life cycle.

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The bottom line

• The quality integrated due diligence process investigates deep connections and interdependencies between business functions. 
• Integrated due diligence allows buyers to make more informed decisions based on a deep understanding of how different parts of the target company work together.
• Detecting interdependencies and interconnected risks during due diligence helps buyers optimize M&A strategies for a successful acquisition.
• Buyers should ask themselves several important questions about the deal’s ROI, post-deal integration, human resources, operations, and other aspects as part of integrated due diligence.
• Virtual data rooms (VDRs) can drastically facilitate integrated due diligence, ensuring security, deal engagement, and dealmakers’ accountability.