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Why due diligence is an essential part of M&A transactions

An article in Acquisition International featuring Bryan Brighton, Director at Merrill DataSite

Bryan Brighton, Director at Merrill DataSite, the leading virtual data room provider, tells us why due diligence is an essential part of any M&A transaction.

The financial recovery has been slow, but steady, in the UK. Sustaining this, while other economies in Europe continue to struggle, is an ongoing challenge. One of the UK’s strengths however is political and social stability – only more recently impacted by the Scottish referendum, which caused some investors to withdraw and a few questions in the market.

M&A activity in the UK is positive and growing: statistically, Merrill DataSite usually finds July and August a slow period. However, this August presented relatively little difference in terms of new projects opened, which indicates a ramping up of deals for Q3 and Q4. At Merrill DataSite, we primarily witnessed an uptick in the Retail sector during Q1 and Q2, so there are definitely opportunities with consumer products and services.

Due diligence is an essential part of any M&A transaction and the desired outcome is simply to enable a potential buyer to assess whether or not the purchase is beneficial to them – it’s an unbiased process. A good VDR will help the seller package and present their asset in the most effective way, but only so information is easy to find and the process of disclosure as simple as possible for all involved.

The due diligence process is specifically undertaken to determine whether or not the entity under consideration is a “good fit” in terms of what the buyer (or merging entity) is looking for. The execution of due diligence is not a negotiation or an investigation, but a review of extensive amounts of data as a “fact find” mission.

Due diligence involves various parties, including legal teams, advisors and banks, researching information about the “asset for sale” to ensure everything is revealed before a decision is made. Everything from financial records to possible clashes that would affect integration must be reviewed.

The timeframe for due diligence varies enormously depending on the size and complexity of a deal, but typically one of our VDRs will be open for an average of 340 days. One trend we see from the Merrill DataSite standpoint regarding due diligence is that the actual time the process is taking isn’t growing – the average number of days for a project is relatively static. What is growing, however, is the number of individual users involved with a VDR. This indicates that the parties involved may be inviting more people to review information more intensely during due diligence to ensure that vital “good fit”.

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