Ideally, due diligence should be done ahead of a deal closing and in the early stages after closing with intention and preparation. How would you advise a company that has historically taken a light integration approach for the first year after acquiring a company to proceed?
Also how do you balance assuming the financial risks and outlook of a smaller company acquisition with the reward? Often times, smaller companies don’t have good financials and financials are misrepresented and not well understood.
I would advise the company to adjust it’s integration timeline based upon the particular M&A. Longer time lines are needed when certain elements exist such a labor contracts, a company that is doing very well on it’s own, additional integration capital needs, etc… However, short time lines are needed when the company needs help now, or if the deal needs immediate value returned. So, look at the various scenarios and be prepared to adjust time lines as needed.
With regards to smaller companies supplying accurate records I would base the M&A agreement/terms sheet on specific performance criteria with specific remedies if there is inaccurate information supplied or if records are falsified. This is pretty standard but trickier than it seems!
In my opinion, size of the target company does not matter and should not decide the scope of ‘due diligence’ prior to closing as well as for taking a ‘light integration approach’. As you would agree, both of these are very critical for a successful acquisition. All the ‘synergies’ envisaged at the time of due diligence and closing the deal need to be achieved by an efficient ‘post merger integration’ process which will include the ‘synergy capturing’ as well. My advice to such an acquiring company would be get this loud & clear, build capabilities accordingly in advance and then proceed to evaluate any targets and acquire the right fits.