M&A Due Diligence for Informed Decisions

Mergers and acquisitions (M&A) are typically high-risk, time-sensitive, and complex transactions that require thorough due diligence research for informed decision-making.

With a client list that includes well-known private equity firms and many companies in the Global 1000, Freedonia Strategic Insights has been providing due diligence research for decades based on tested, proven methodologies.

In this article, we explain the nuts and bolts of M&A due diligence and illustrate these concepts with specific client examples.

Why Is M&A Due Diligence Important?

Whether a company is looking to sell or acquire, a comprehensive assessment of the business, the market environment, and competitor dynamics is needed to make an effective go/no-go decision.

• Buy-side due diligence research: Prospective buyers consult third-party vendors or research companies to conduct a methodical, evidence-based, and unbiased investigation of the target company to inform their purchase decision. Due diligence market research gives prospective buyers an understanding of the business’s health, customer base, growth prospects, and potential return on investment. It also identifies market opportunities and ways to increase revenue and optimize profit.
• Sell-side due diligence research: Similarly, sellers benefit from a thorough assessment of their company’s value proposition, including assets, market position, intellectual property, revenue growth potential, capital, debts, and investments.

For clients of Freedonia Strategic Insights, purchasing or selling a business is often a multi-million-dollar investment, while the cost to complete a thorough evaluation of the business and its market environment is a small, often single-digit percentage of the purchase price. Comprehensive and insightful due diligence research reveals and quantifies opportunities to inform strategic decisions and mitigate risk during make-or-break moments.

Types of M&A Due Diligence We Provide 

• Operational due diligence evaluates management, production, sales, and strategic processes that shape how the business is run.
• Financial due diligence assesses the financial health of a business, including its sales revenue, profitability, capital, return on investments, debts, and liabilities.

Common Challenges in M&A Due Diligence

Companies face several key challenges when conducting due diligence market research on their own. They may be uncertain about the current or predicted health of the industry or market, lacking a methodology for a comprehensive evaluation of the market environment, including market size and segmentation.

Additionally, they may have a vague understanding of company valuation and struggle to determine the company’s value over the investment or payback period. Limited access to consistent economic indicators further complicates their efforts, as they may not have the necessary data to reliably track market growth and assess a company’s position.

Moreover, limited access to industry experts can significantly hinder primary research efforts, with outreach attempts going unanswered. Competitors and industry participants may be reluctant to disclose revenue figures or other valuable data that has not been released to the public. Lastly, internal biases can create blind spots, distorting data and conclusions.

These challenges can be quickly overcome by partnering with a respected firm like Freedonia Strategic Insights, which can provide a complete picture of the overall market environment and an objective evaluation of the acquisition target, including its competitive position, financial performance, value proposition, and overall health and profitability. As a known and respected name, Freedonia can open doors to B2B primary research that is otherwise unobtainable.

Components of M&A Due Diligence

While the specific approach will vary depending on the client’s needs, M&A due diligence will typically take into account the following factors:

• Market environment: Current and forecast demand, consumer preferences, regulatory conditions, technological developments, and other trends impacting growth
• Competitive landscape: Leading players, their market share, value propositions, and strengths and weaknesses
• Path to market: The top distribution and sales channels
• Acquisition target: The company’s value, the market opportunities it can capitalize on, and its ability to realize those opportunities

Identifying Acquisition Targets

Mergers and acquisitions can significantly expand a business in terms of market share, geographic presence, or product/service offering—though the specific opportunities may not always be immediately apparent. For companies without a definite acquisition target in mind, a research firm like Freedonia Strategic Insights can help identify potential targets and assess them based on specific parameters such as facility size, manufacturing capabilities, and estimated revenue. This tailored approach ensures that companies can find the best fit for their strategic goals.

For example, Freedonia Strategic Insights conducted a search to identify more than 120 potential acquisition candidates worldwide for a manufacturer of bearings and other industrial components interested in expanding its offerings through an acquisition. Our team provided information regarding each candidate’s product mix, estimated revenues, employee count, and any additional insights that would make it particularly attractive to consider for acquisition.

Due Diligence Example

So, what does M&A due diligence look like in practice? Consider the following scenario: To support a potential acquisition, Freedonia Strategic Insights investigated North American demand for select rubber products.

After defining the research scope with the client, Freedonia conducted both primary and secondary research to collect data for analysis. This included performing more than 30 in-depth interviews with industry participants such as manufacturers, distributors, retailers, and other commercial purchasers to gather their perspectives on the market.

To establish baseline assumptions and estimates, our analysts employed data from several related Freedonia industry studies about the rubber market and our in-house economic forecasts—allowing us to quickly build a strong foundation of data.

Next, we analyzed current and forecast demand on an annual basis, segmented by each of the four main product types of interest to the client. This analysis included a discussion of trends impacting future growth, providing a clear picture of the market’s trajectory.

For each product type, Freedonia examined current and future demand by channel, including DIY stores, wholesale, industrial distributors, farm retailers, e-commerce, and other specialty distributors. They provided a narrative that explained current and expected shifts in channel preferences, offering insights into how the market dynamics might evolve.

Additionally, the competitive landscape for the in-scope rubber products was assessed both overall and by product type. Our team identified the leading players, their market shares, and the nature of the competition in each segment.

The client received the insights it needed in under five weeks and used the findings to inform its go/no-go decision for the acquisition. Satisfied with the results, the client followed up two years later and hired Freedonia Strategic Insights for another similar project.

Freedonia’s Due Diligence Research

Freedonia is widely recognized as a leading market research firm with more than 35 years of experience and a rigorous methodology and quality-control process. Our in-house economics team delivers accurate economic indicators to ensure clients have the most precise data available. We enhance traditional desk research with sophisticated economic modeling and in-depth primary research to offer comprehensive analysis tailored to your needs.

Our reputation and name recognition encourages respondents to engage with our analysts, providing valuable insights that would otherwise be inaccessible. Additionally, our extensive library of syndicated market research reports and background data enables us to execute projects with remarkable speed and efficiency—a critical advantage for M&A due diligence. Trust us to guide you through the due diligence process and help you make effective strategic decisions.

Reach out to us today to discuss your goals. Even if your research deliverables are not yet fully defined, we can work together to scope out the project and meet your information needs.