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When two companies engage in the mergers and acquisitions dance, negotiating price and signing a letter of intent is simply the start of the process. What follows is arguably the most important and time consuming step in an M&A deal: due diligence.

Due diligence allows the buyer to confirm that all of the information the seller has given is truthful and accurate, while also gathering further information that may not have been discussed. Verifying important variables like current contracts, getting an in-depth look at financial statements, and taking a look at customers are all key pieces of information that helps a business close the deal with confidence.

Read on to learn more about the due diligence process, and why it is a crucial component in mergers and acquisitions.

Why is due diligence important for private equity firms?

USC Consulting Group regularly performs due diligence deep dives for our Private Equity clients to discover the “truth” behind a company’s curtains. In pulling back those curtains, we’ve discovered that some businesses trying to be acquired fabricate their earnings and production numbers to seem more appealing and drive a higher selling price.

Performing due diligence exposes the real numbers of a potential acquisition. This process not only confirms that all of the information the seller has provided is accurate, but it also allows a buyer to verify any other important variables that may not have been discussed.

Here are some of the steps we take in performing due diligence for our clients.

Important steps in due diligence

Due diligence is a complicated process which can take anywhere from a few weeks to two months or more. Therefore, it’s important to hit a number of key benchmarks to make sure the process goes as smoothly and quickly as possible.

Gather the right team

A full due diligence analyzation requires looking over a multitude of the seller’s documents. These can range from financial reports to real estate holdings to sales figures, and anything else pertinent to the deal. You need people who can make sense of it all. Making sure you have members on your team who can properly understand and analyze these documents is crucial for establishing a clear picture of the seller’s business health.

Establish goals

Think about your corporate goals. What data is most important to you? What information do you absolutely need to verify? If some aspect of the seller’s business doesn’t meet expectations, what variable would constitute a deal-breaker?

Establishing goals before beginning a due diligence assessment serves as a compass of sorts to navigate your company through all the data and find what is most important for your corporate goals.

Gather and review important documents

This step is the meat of the due diligence process: gathering important documents from the seller and analyzing them with your team.

The exact documents you’ll need vary based on industry and type of merger or acquisition, but more often than not this will include financial statements, real estate or lease information, insurance, manufacturing operational data, and anything else that the buyer deems pertinent. Things to look for, specifically include:

This step goes hand in hand with gathering the right team, because it is important to have people in your company that know how to properly analyze and highlight important aspects of these documents.

Not just the what, but the how

Proper documentation and verification is vital. But it’s also important to take into account how they are being provided to you. Is the seller taking a long time delivering documents? Do you have to ask repeatedly? Are the documents arriving with inconsistencies or otherwise incomplete? Huge red flag. Conversely, is the seller being extremely cooperative, sending documents in-full and on time? Take note of the behind-the-scenes behavior of the seller to get a full picture of the company.

Re-evaluate information with your strategic goals

After all of the information provided by a seller is adequately analyzed, the final step for a buyer is to determine how to proceed.

How did these documents align with your strategic corporate goals that were established before the due diligence process? There may have been unexpected variables discovered during the process, both good and bad. Refer back to your corporate “compass” to determine if these should hold weight during your decision. Overall, does your team agree that it is wise to continue? Or was there something unearthed during the process that gives you pause?

USC can be your partner

Performing a successful mergers and acquisitions process is extremely complicated; this is just the tip of the iceberg. It requires the right team giving you the right information. At USC Consulting Group, we can help you paint a clear and realistic picture of the considered portfolio addition to help you make a confident decision about the future of your company. Whether performing due diligence efforts or improving the productivity and efficiency of a business already in your private equity portfolio, USC can help you.

Private Equity Value Creation eBook

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Available financing and an abundance of dry powder in the Private Equity sector has recently increased the volume of deals and generated the highest amount of buyouts ever. This environment has not only sustained high average EV/EBITDA  multiples in the mid 11s, but the related yield pressure has caused GPs to look at creative approaches to winning asset competitions as well as value creation.

Business management consultancies are being leveraged as an important tool in the PE value creation toolkit due to their vast industry experience.  Yet even within a particular PE firm, financial dynamics are constantly in flux.  With deal competition driving firms to shake up their strategy and models, management consulting represents a critical stopgap for PE firms looking to navigate the private equity life cycle and implement sustainable operational improvements.

Rising above the competition

To really find great value in this tight market, you need to know what to look for in a consultant.  Ask yourself: Is your consulting firm simply providing philosophical and strategic guidance while leaving you to execute change unsupported?  Do your consultants have the operational expertise needed to deliver results?

This is where we can help.  USC Consulting Group is a top-tier organization with over 50 years of experience implementing sustainable operational improvement and leveraging that functional experience to help PEs get the most out of their investments.

Download our eBook: “Private Equity Value Creation: Increase Yield and EBITDA through Leveraging Consultants” to learn more, like:


Private Equity Value Creation eBook


Interested in learning more?  Contact USCCG today to discuss your portfolio companies and how to generate the greatest value creation.


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