The Mergermarket M&A Forum in Germany, held on April 18th, 2023, explored the importance of digital due diligence and exit readiness in today's economic climate. Here are some of the key insights of the event:
Wider scope, longer process
The current environment of economic downturn and uncertainty causes investors to be more cautious when conducting due diligence. The process has become longer, with investors wanting to understand the full scope of tech, data, cybersecurity, and digital due diligence to better protect themselves from downside risk. This also means deal makers need to be transparent and provide detailed information about potential risks associated with the investment, to build trust with investors and increase the chance of a successful transaction.
Ensuring Exit Readiness
By embracing digital transformation, dealmakers can position their companies for success and make them more attractive to potential buyers. For example, the implementation of cloud-based software, automation tools, AI, and other digital solutions can improve workflow, streamline operations, and reduce costs, ultimately maximizing exit opportunities. Assessing digital and commercial readiness and implementing key value creation initiatives before initiation of the sales process leads is key to creating a more compelling equity story and enterprise value maximization.
Unveiling potential risks
Conducting deals without airtight due diligence can create severe consequences. There is significant downside risk in the cases where a company turns out to be a bad investment, due to undisclosed liabilities, fraud, weakness to cyber attacks, or other issues like technology replacement of services. Strong due diligence is the most important factor for good deal outcomes, and deal makers should conduct it thoroughly to protect themselves and their investors from potential losses.
In conclusion, the Mergermarket M&A Forum highlighted the importance of comprehensive due diligence and exit readiness in today’s economic climate. The M&A landscape is evolving rapidly, and dealmakers need to stay ahead of the curve to make the most of their investment opportunities. In addition to the technology itself, dealmakers should also thoroughly examine the financials and operations of the company through a commercial due diligence. This includes reviewing the company's revenue streams, profit margins, and cash flow, as well as examining its business operations and management team. By conducting a thorough due diligence process, dealmakers can identify any red flags or warning signs that could impact the investment. We at OMMAX recommend full commercial, tech, digital, and data due diligence for a holistic approach.
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