Due diligence comes to fore: while the previously record-breaking M & A velocity has slowed since last Summer, there is still considerable activity. Two consultants offer insights on approaching 2008 with sharpened deal-related scrutiny.

• Author: Elinson, Sara
• Position: M & A

Although the recent challenges experienced in the credit markets have slowed deal activity in the short term, as we begin 2008, investors will continue to seek out attractive investment opportunities. Those who can move with speed and alacrity and act decisively will be at a competitive advantage.

In such an environment, the quality of the transaction and due diligence prior to inking deals becomes all the more crucial.

Innovative deal strategies are helping buyers sharpen their edge in an extraordinarily competitive M & A environment. One "workhorse" element of successful deal-making that has adapted well to the changing times is due diligence.

Traditionally, the core point of diligence has been to provide an acquirer with enough information about a target to pave the way for an informed decision about whether or not to pursue the transaction, and, if so, at what price and on what other terms. That primary role for diligence has not changed, but to this core purpose has been added a new perspective on due diligence: that of a tool for heightened competitiveness around deal price and speed.

This is the case since the realities of today's deal market have produced three inescapable imperatives that every acquirer must possess:

* Assess value despite uncertainty;

* Surface risks and risk mitigation strategies quickly; and

* Combine an effective, pre-transaction diligence approach with the integration process to ensure maximized deal value.

More sophisticated sellers are forcing buyers to revisit how they do deals. Achieving these objectives involves getting to the right issues quickly, gaining additional insight through targeted analysis, putting more emphasis on realization of synergies and building creativity and flexibility into the deal-making process. In short, thorough due diligence is more important than ever. Greater agility in the face of increased competition and deal velocity demands a new diligence paradigm.

Even in an intense market, one constant holds true: due diligence can be relied upon as a differentiator in achieving deal success. And many dealmakers are taking a fresh look at the due diligence process as both a defensive necessity (the traditional view) and as an offensive tool.

Avoiding Issues that Erode Deal Value

The usual drains on deal value during the diligence process include inefficient coordination or misaligned deal team, inconsistent deal evaluation criteria, time wasted chasing off strategy deals, inadequate coordination among advisors, not having appropriate mechanisms to identify and resolve bottlenecks and no standardization of execution...