M&A due diligence
We conduct financial, tax, commercial, operational, IT and cyber diligence to help you identify transaction value drivers, improve M&A deal structures and mitigate risks. We also help challenge assumptions about future performance so you can choose the right valuation.
What EY M&A due diligence consulting can do for you
We conduct diligence to help you answer questions about the value drivers of your deal. Our clients include large cap and middle market organizations, as well as private equity funds. Read more about our due diligence services below, including special considerations for diligence on digital companies, including digital startups.
Commercial due diligence
- What is the strategic rationale for this deal and what makes this target attractive?
- What incremental markets, customers or sales channels will be created or accessed by this acquisition?
- How does this transaction enhance our brand or market position?
Financial risk due diligence
- Do historical reported results accurately reﬂect run-rate proﬁtability? Do you have the right data to support your forecast?
- What factors, if any, will affect the purchase price?
- What balance sheet and off–balance sheet exposures concern us most?
- How could accounting issues materially affect reported results or disclosures after closing?
Human resources due diligence
- How will changes to peoples’ roles, responsibilities, and hierarchies inform the overall organization’s design?
- How will compensation and benefits programs that align to the future state vision be designed, implemented and rolled out to employees?
- What targeted actions must we take to align leaders, the business, and employees to create a seamless onboarding experience?
IT due diligence
- How do we plan and prepare for Day One to minimize business disruption and enable IT connectivity between buyer and acquired company?
- How can we leverage the merger as a catalyst for IT transformation?
- How can we assess existing IT capabilities for access to new markets and operational improvements?
Operations and synergies
- What is the source of synergies and how are they quantified?
- What are the key Day One and post–Day One operating risks and priorities?
- What synergies are available (revenue, cost, tax, balance sheet, etc.)?
- Are appropriate plans in place to implement and capture synergies?
Regulatory due diligence
- What regulatory issues could threaten compliance or erode transaction value?
- How could potential regulatory changes affect the target’s ability to achieve projected growth?
- How will we protect company information and assets while integrating infrastructure and critical applications?
- Where are the acquisition’s IT security vulnerabilities?
Valuation, modeling & economics
- Is the purchase consideration complicated?
- Is the board protected through an outside opinion of value?
- Are the impacts of opening balance sheet valuation adjustments clearly understood?
- Will tax structuring require a thoughtful understanding of value to achieve maximum efficiency?
- Do we have a tax-efficient structure to deliver the commercial objectives and investment basis of the transaction?
- Is there a globally coordinated approach for tax risk and controversy?
- Have we considered the tax implications as digital technology changes business strategies, models and supply chains?
EY M&A due diligence consulting when acquiring digital companies
Special considerations for digital companies, including digital startups
As technology disrupts traditional business ecosystems and the competitive landscape, we can help you consider the unique aspects of diligence surrounding valuation, talent, product and commercial strategies when you pursue buying digital companies, including startups. These companies create customer value through the use of digital technology, and focus on capturing, storing and processing data. They incorporate a technology lens into everything they do to better serve stakeholders.
Valuation of digital companies
Brand or product transformation may be more important than cash flow in the near term. Correctly assessing synergies and risks that differ from the core business may be critical and can be difficult to measure directly, particularly if a business isn’t profitable yet.
Valuation questions to consider:
- Where are the target’s value drivers and digital revenue synergies from the investment?
- What digital metrics (key performance indicators) can be defined and factored into valuation calculations?
- When and how will you reap returns on your investment?
- What risks are associated with the digital asset?
Integrating talent when acquiring a digital company
Getting the talent strategy right can make or break a deal, which may include founders, engineers and technologists whose talent is the lifeblood of the business.
Talent questions to consider:
- How is the organizational and governance structure different from your own?
- Who is the critical talent, and how should you structure the retention?
- What are the differences in culture and policies?
- What are the unique skill sets and capabilities?
- What role will founders play in setting strategy and vision?
Product portfolio strategy for M&A of digital companies
Companies can evaluate their entire product portfolio for potential technology and innovation opportunities, but they need a clear view on how a digital acquisition brings sustainable value, revenue accretion and customer retention.
Product strategy questions to consider:
- Do you have visibility on the research and development pipeline?
- What are the risks associated with the product pipeline?
- How will you support product development?
- How will you collect, analyze and utilize new levels of data?
Commercial diligence for M&A of digital companies
Companies need to consider how they will incorporate new selling models, new customers that engage with their products in a different way, and more data to be collected and analyzed.
Commercial diligence questions to consider:
- What is the target’s go-to-market strategy, and how is it different from the buyer’s strategy?
- Who are the new customers, and what are the potential revenue streams?
- How will new products and services affect existing customers?
- How can the existing customer journey be enhanced in new channels?
Explore our M&A solutions and technology
Our latest thinking
Contact our M&A due diligence consultants to support your business
Like what you’ve seen? Get in touch to learn more.