What is typically evaluated during the due diligence process?

During the due diligence process in mergers and acquisitions, the focus is primarily on assessing the target company’s business fundamentals to ensure that the acquiring company makes a well-informed decision. This involves a comprehensive evaluation of the target company's business operations, financial records, and legal compliance.

Business operations analysis helps identify how the target functions, including efficiency, management structures, and any potential inefficiencies or risks. Financial records are scrutinized to assess profitability, revenue trends, liabilities, and overall financial health, ensuring there are no unexpected financial hurdles post-acquisition. Additionally, evaluating legal compliance is crucial to identify any outstanding legal issues, regulatory compliance, or potential liabilities that could impact the acquisition's value or the acquiring company's reputation.

While feedback from employees and opinions of the management team can provide insights, they are not the core components evaluated during due diligence. Similarly, the acquiring company’s marketing strategy, while essential to its overall planning, is not the focus during the due diligence of a target company. Instead, due diligence is fundamentally about minimizing risk and confirming the value and viability of the target, making an evaluation of its operational and financial integrity paramount.