A recent discussion with VPs and directors from several private equity (PE) firms shed light on the often-overlooked challenges associated with managing M&A due diligence processes.
Key Findings:
- Seniority Relief, Junior Concerns: Senior deal team members expressed relief at no longer managing DD processes themselves. However, they voiced concern that junior colleagues entrusted with this task might lack the experience to effectively identify and prioritize critical issues. Time constraints and workload pressures were cited as additional hurdles for junior DD leads.
- Limited Training, "Safety-First" Approach: These senior members acknowledged a lack of formal training on managing DD processes during their own junior years. This resulted in a "safety-first" approach when they first took on DD leadership, often relying on precedents from past deals without exploring potentially beneficial new approaches.
- Knowledge Gaps and Information Overload: Difficulties in assessing the quality of non-financial and commercial due diligence scopes were highlighted. Additionally, the sheer volume of diligence findings presented a challenge in efficiently summarizing and disseminating key information to internal stakeholders and advisors.
- Advisor Management and Cost Concerns: Maintaining control over advisor fees and preventing cost overruns emerged as a recurring issue. Senior members believed that improved process management could have mitigated these issues. Stress and Time Constraints: Unreasonable timeframes and difficulties accessing crucial information were identified as significant sources of stress during the DD process.
- Lack of Standardization: The absence of standardized training for managing DD processes was a point of agreement among all participants.
These insights from experienced PE professionals highlight the potential shortcomings of traditional M&A due diligence practices. Addressing these challenges through improved training, standardized processes, and effective communication can lead to more efficient, cost-effective, and ultimately, successful M&A transactions.
