Follow Columbo’s lead when it comes to M&A due diligence

BVWireIssue #93-2
June 16, 2010

To put it bluntly, “virtual data rooms make people lazy” when it comes to a transactional valuation, concluded Andrew Sherman, JD (Jones Day) in his presentation at the NACVA conference in Miami Beach two weeks ago.  Sherman expounded upon the concept of due diligence as an art form, reminding his audience numerous times that “no one likes a surprise!”  He requires an organizational “ecosystem” be charted out, and that it includes every possible stakeholder imaginable.  “We all know vendors come out of the woodwork at the eleventh hour,” quipped Sherman, who also challenged the audience to admit that a “12-year-old could write the majority of due diligence reports” he sees. 

Sherman’s co-panelist Scott Whitaker (Whitaker & Co.) echoed Sherman’s appeal for deeper due diligence by acknowledging that the most common cause of failure in M&A transactions “is a lack of planning.  You should at least steer totally clear of ‘short-term-it-is,’ which trades long term strategic planning in for near term expediency.  People will freeze until they know who they report to.” 

Whitaker’s top six reasons for “synergy bust” are:

  • Synergy targets are inflated to make deal look positive
  •  “Negative” synergies are never accounted for
  •  Key integration workstream issues are delayed
  •  No one has accountability for synergy targets
  •  Proper plan to attain synergy targets is not developed
  • Poor tracking and variance reporting. 

Sherman reminded listeners that it was Columbo’s “one more question” that often solved the case.

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