Ignoring due diligence findings
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Dear Community,
I’m eager to know your opinion: Do you find that strategic buyers tend to overlook due diligence findings in M&A transactions more often than not? If so, what factors could contribute to this tendency?
A strategic buyer might choose to overlook certain issues if there is a concern that a competitor could acquire the target company, potentially strengthening a competitor’s position in the market. So you might take the risk to secure your position (eg preventing a foreign investor to enter your market)
I may not necessarily describe it as “overlooking” due diligence findings. It could be that a strategic buyer has assessed risks and is comfortable taking it on, for a variety of reasons. For example, a strategic buyer may well determine that the benefits arising from synergies outweigh potential (quantitative) risk. Another reason could be that a strategic buyer is aware of certain risks being the norm in a given industry or geography.
Anyway, in my experience working as external legal adviser and currently an internal deal counsel, I don’t think strategic buyers generally disregard due diligence findings. On the contrary, I find that they generally do a holistic assessment of risks and mitigating factors.
Strategic buyers may overlook due diligence findings, particularly when an acquisition aligns closely with their long-term vision. Factors such as expected synergies, competitive pressure, and emotional investment can influence decision-making. While these factors may accelerate deal timelines, they can also increase the risk of post-merger complications.
Depending on the size of the acquirer and the purpose of the acquisition (Strategic reasons) , acquirer may choose to put less emphasis on certain parts of the DD findings as they may adopt the processes of the main company after the acquisition. The main purpose could be due to the customer base, the licenses and not the talents of the company etc.
From my experience, strategic buyers are more thorough in due diligence than VC companies. Strategic buyers are normally more familiar with the target companies technology and they often develop post deal strategies such as site closure & consolidations within their own footprint to take advantage of scale.
I see that strategic buyers don’t really overlook things, although this might seem from the outside. They properly weigh the risks of what they do and do not take into account for their DD findings. These might be different than your own perspective.
I was not involved in a M&A deal before, but was involved in DD in another project, and I can see that sometimes if the company want to make the deal they will overlook the non-critical areas in the DD.
When the drive to capture market share is intense, management may sometimes overlook certain due diligence findings. However, this does not necessarily mean the decision will result in a negative outcome.
Several of these posts bring up excellent points such as comfortability with assessed risks, synergies outweighing potential risks. Additionally, I think it depends on the findings and the purpose of the acquisition. I would say strategic buyers may be more concerned about regulatory, reputational, or significant financial risks versus say business processes or lack of integrated systems. As long as they can make changes post-close without significant costs, they may be willing to overlook certain business risks.
In my experience strategic buyers generally do not overlook due diligence findings, as these are critical for aligning the acquisition with their long-term goals. However, they may deprioritize certain risks if the acquisition offers significant strategic value or synergies that they deem outweigh the potential issues.
Overconfidence in synergies is definitely a key driver; buyers often become so fixated on the perceived strategic fit and long-term benefits of the deal that they tend to downplay or even ignore risks uncovered during due diligence. This mindset creates a natural aversion to “spoiler information” that could derail the deal narrative they’ve built, leading to critical oversights.
It’s no surprise, then, that many acquisitions fail to deliver on their promises, with post-deal challenges such as integration issues, cultural clashes, or financial underperformance stemming from ignored red flags.
I do not think it is being overlooked but more likely it is because the buyer is also from the same industry as the target and is familiar with the risks flagged in the DD findings and probably already have mitigation measures in place to deal with the risks
Yes and no. As a financial advisor to strategic buyers, I make sure my clients thoroughly review the DD reports and are aware of key risk findings. However, that doesn’t mean they need to take action on every single risk identified.
Some risks aren’t necessarily being “overlooked”, rather, they are consciously accepted. At the end of day, every investment carries risks, and a significant portion of them either cannot be effectively mitigated through price adjustments or SPA terms, or simply aren’t worth negotiating over. It’s all about balancing commercial priorities and focusing on what truly matters in the deal.
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