M&A Due Diligence

M&A Due Diligence: R&R Explores the necessity of due diligence in mergers and acquisitions.

By Ian Richardson, Managing Partner, Richardson & Richardson Consulting LLC

Inspired by Thursday Process with guest Mark Shaw, CEO of Stored Tech

M&A Due Diligence

“This is awesome. This will be amazing. I love this person/company, they love me. Let’s do this!” This quick quote from Mark Shaw, CEO of Stored Technologies, perfectly sums up the “rose-colored glasses” that can be worn during the merger or acquisition process. This honeymoon period, as with any new relationship, will end eventually and reality will settle in. Mark and I sat down on the Thursday Process, the Richardson & Richardson webinar series around process and lessons learned from entrepreneurs, to talk about company culture and managing it through the M&A experience. A big portion of our conversation was around the importance of M&A due diligence, and specifically, company culture and assessing if the two organizations will be a “good fit” post-acquisition moving forward. See a clip of that conversation below.

The necessity of due diligence in mergers and acquisitions

I would doubt that there is anyone who knows what the words “mergers and acquisitions” mean that would contradict the statement that “due diligence is a necessity.” At its crux – due diligence is performed by both ends of the equation. Buyers will be assessing “Can this organization that we’re looking at purchasing continue forward, delivering similar or improved results after the exit of the entrepreneur(s) from the company?” On the sell side of the equation, a seller will be evaluating the buyer as a “safe” option for their team, clients, and organization – no one wants a business they spent years building to fail after their exit.

Due Diligence commonly is thought of around financial and legal items, through a lens of risk, alongside HR and Client considerations. Common topics include:

  • Human Capital: Benefits and Pay scale alignment, differences in HR strategy or practices, retention of teams.
  • Clients: Client base, makeup, billing structure and rates charged, geographic range.
  • Product and Service alignment
  • Financial performance of the organization, including accounting practices
  • Legal status of the organization and its contracts, alignment between terms and conditions between companies.

One critical item to consider during the due diligence process is that of “Company Culture” – which is far too easy to glaze over when an organization is showing high financial return on paper.

Due Diligence for Company Culture

Company culture is the critical component of an organization and its processes, habits, and practices that can make or break an acquisition. How does the company speak to its team, clients, prospects, and community? How does the team communicate and work together? What behaviors are rewarded, and what is frowned upon? What are the core values of the company, and are they operationalized, or “lip service” only? To quote Peter Drucker – “Culture eats strategy for breakfast.” The best strategy for an acquisition or merger will be absolutely crushed by a culture mismatch.

If you’re focused on mergers and acquisitions as a growth strategy for your organization, figuring out how to approach selling your company, or getting alignment with your team on the need to invest in the effort, Richardson & Richardson can help. Check out our case studies for stories of organizations that we’ve assisted with similar issues and download our white papers for deep dives on tools you can use in your organization. If you’re wondering where to start, book a complimentary session with one of the Richardsons today to come up with a plan on how to move forward.


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