Not long ago, I was working with a private equity firm interested in acquiring a founder-owned manufacturing company. The PE firm and its third-party consultants used long lists of requests, many of them duplicative and submitted on Excel spreadsheets, to manage the due diligence process. It didn’t take long for the seller, frustrated at the cumbersome and poorly coordinated effort, to cancel the deal in favor of another acquirer.

Although due diligence is a complex part of the mergers and acquisitions (M&A) process, it doesn’t have to be this disruptive and, as a process, it should never be what kills the deal. 

Here are three recurring reasons the process goes amiss based on what I’ve learned over the years working on these deals.

Underestimating the process

No matter what side of the M&A transaction you’re on, it’s important to understand the magnitude of due diligence and how long it can take to compete. 

I was once working with an acquirer and the target company had failed to prepare material before engaging in the sale. As a result, the company executives were ill-prepared once the deal began and were left scrambling to answer the acquirer’s questions on taxes, capital structure, commercial contracts and property insurance. Not only did this make the due diligence process drag on, but, crucially, it pulled the executives away from their daily operational tasks, hurting their company. 

Clearly, when you’re preparing for and going through an acquisition, you must remain focused on your operational duties and objectives. Therefore, if you’re with the target company, you really need to start preparing due diligence materials long before the process begins. Ideally, as soon as your company starts considering an exit. 

That means having at the start material on human resources, intellectual and commercial property, taxes, revenue growth, capital structure, legal contracts, suppliers, commercial policies, and insurance. Basically, prepare the documents you feel buyers will need to make an informed decision about a sale. 

If you have multiple companies interested in your company, you’ll be faced with multiple requests for information, much of it duplicative. For that reason, put in place an operational framework for distributing, assigning, tracking and fulfilling these requests so they don’t consume the attention of you and others on the executive team. 

If you’re on the acquisition side, try to come into the process with some empathy. Many executives and their staff don’t appreciate what those on the other end of the deal are facing. I’ve seen buyers request documents that are not vital to deal decisions, leaving the executives at the target company overwhelmed. To what end? Simply putting yourself in the shoes of the buyer makes the deal close faster.  

When you’re on the acquiring side, send your requests in a clear, organized and succinct form, cutting out duplicate work. Try to avoid sending disconnected requests through email chains and convoluted spreadsheets.

Using ill-fitting tools

The second reason I’ve seen due diligence fail is that executives use an ill-fitting tool to manage the process —  Excel. Buyers typically send their information requests by way of Excel, typically batching requests together, often in no particular order, and wait for the response. 

When you do things that way, your putting the executives on the other side in a difficult position. They have to take the time to organize and send their responses in batches, which means time-sensitive information, in many cases, is not sent until all requests are fulfilled. 

There are many reasons Excel is not the best tool for this kind of information sharing. Among other things, it allows for only limited collaboration and its organizational structure isn’t optimal, causing the process to be more time-consuming and complex than necessary. 

Due diligence could be much better managed on a project management tool that enables collaboration between the buyers and the target company. Take Google Spreadsheets as an example. Although it’s not specifically a project management platform, it can be updated in real time and accessed by all parties without the use of long email chains. It also allows users to drag and drop rows in order of highest priority. 

Disconnecting integration from due diligence

The third recurring problem is the needless segregation of due diligence and integration. 

Large serial acquirers and organizations with established M&A functions often leave deal sourcing and due diligence to corporate development teams and only hand off the process to an integration team for post-close implementation after the deal is finalized.  

By keeping these processes siloed, risks can get introduced into the process if the corporate development team uncovers important information about the target company but fails to pass it along, something that happens all too frequently.  

Meanwhile, the integration team is left to conduct their own form of diligence post-close, repeating a process already completed and putting further strain on the staff at the acquired asset. 

This lack of collaboration creates information chasms, duplicate work, and irreversible missteps. 

A better approach is to allow those in charge of integration to play a large role in discovery and in assisting the corporate development team to identify and mitigate risks. By playing this role, the integration team can begin recognizing and solving for issues, including all-important cultural misalignment. This will not only lead to better deal decisions but it will enable a smoother transition and increase the deal’s long-term value creation. 

To be sure, this way of conducting a deal won’t be free of conflict. For example, if the integration team is conducting complementary due diligence, the target company may receive a heavier amount of requests for documents and even duplicate requests if the integration team is not aware of what has already been requested. 

In addition, those on the integration team are also the ones who must, in the end, make value out of the acquisition. This may lead to differing opinions about whether or not the company will successfully integrate with their everyday operations. This could cause longer deal times if concerns arise.

But this form of conflict can lead to better, more informed deals.

Due diligence is a vital deal process that, when done correctly, produces the knowledge needed to inform necessary deal decisions. Practitioners often approach this process as a painful one that simply needs to be done. But it’s more properly seen as an opportunity to close a deal as successfully as possible. 

Handling this process thoughtfully will bolster the outcome of the deal and lead to a more transformative M&A operation.