When planning an acquisition to bolster your core business, conducting thorough due diligence is vital, especially defensive due diligence. It’s not just about reviewing financials; it’s your shield against hidden liabilities, unmanaged technical debt, and other risks that could derail your deal.
What is Defensive Due Diligence?
In any M&A (mergers and acquisitions) transaction, defensive due diligence refers to a deep dive into a company’s financial, legal, operational, and technological landscape to uncover any potential risks or red flags. You need to know exactly what you’re buying – it’s more than just surface-level numbers or projections. This form of due diligence helps you avoid costly surprises after the acquisition is completed.
For example, imagine acquiring a company only to find out that it has substantial undisclosed debts, faulty technology, or hidden legal disputes. Defensive due diligence helps you identify these issues upfront, allowing you to either renegotiate the deal or walk away entirely before taking a massive financial hit.
Real-Life Example: A Cautionary Tale
At Emanda, we recently worked with a client who was close to acquiring a tech company. On the surface, everything seemed fine – the financials were solid, and the technology seemed advanced. However, through our defensive due diligence process, we uncovered a critical flaw. The target company had an enormous amount of technical debt that posed a significant risk of outages and even data breaches. This issue wasn’t apparent in the initial review, but it could have cost millions in repairs and damaged our client’s reputation had it gone unnoticed.
Because we identified this risk early on, our client was able to renegotiate the deal and address the issue before finalising the acquisition, saving both money and reputation.
Why Defensive Due Diligence is Essential
Many M&A deals fall apart because the acquiring party overlooks hidden problems, discovering them only after closing. By being proactive and performing defensive due diligence, you can minimise risk and ensure that what you’re buying is exactly what you expect. Whether it’s identifying cultural mismatches or uncovering unresolved legal disputes, this process equips you with all the necessary information to protect your investment.
What Emanda Offers
At Emanda, our team conducts comprehensive defensive due diligence, examining every facet of a target company – from financials to legal issues, technology infrastructure, and even cultural fit. Our goal is to ensure that there are no surprises after the deal is closed, giving you confidence and clarity throughout the acquisition process.
