What are the most overlooked areas of Due Diligence?
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1- IT infrastructure: This is often overlooked but it can require a substantial amount of work. E.g. your company is using Salesforce and the acquired company using a completely different system to capture sales, issues and so on. It can be a nightmare to integrate.
2- QMS: Seems innocuous but it is not. The merger of processes and in particular QMS can be very complicated in particular when a large companies acquired a small one. The small one will have a higher level of agility, being small than a more bureaucratic large companies particularly in a highly regulated environment where audits can happen and will happen regularly. Bringing the smaller one up to the standards of the larger one can kill the upside of the integration.
I agree with some of the responses that IT due diligence is perhaps one of the most overlooked areas in M&A. Once, I worked on a sell-side for a private banking deal and there was no separate IT due diligence performed. Later, there was a delay in the closing of deal as there were hiccups in the integration of data between the acquirer and target company as both were using different software platforms. Fortunately, the problem was resolved in the matter of days, and the deal went through smoothly. However, it was still a lesson to consider IT due diligence seriously as it can have a serious impact on post-merger integration.
Customer and Supplier Relationships
Why it’s overlooked: While companies focus on financials and legal liabilities, they may not fully examine the stability and dynamics of customer and supplier contracts.
Why it matters: A target’s key customer or supplier base may be highly concentrated or at risk due to contractual terms, dependency on a few partners, or market shifts. A deep dive into these relationships—examining long-term contracts, exclusivity clauses, and the stability of these relationships—can reveal significant risks or hidden value.
In my opinion, the most overlooked areas of Due diligence is the culture of the society where the target company is found. The social culture and tradition where the parent ( the buyer) company may not go with the social structure of the targeted one. In that case the society may be against of the buyer.
In my opinion, the most overlooked areas of Due diligence is the culture of the society where the target company is found. The social culture and tradition where the parent ( the buyer) company may not go with the social structure of the targeted one. In that case the society may be against of the buyer. Overlooking this may impact
– The people in the target company may have special relation with the owners if the assume the purchase is against his interest riots may arise.
– If the society in the area were getting support directly or indirectly from the target company they may assume the new deal have negative impact .
So, when DD is done the assessment of the society relationship with the target business is important.
We have experience with acquiring a company in Vietnam. Alongside the typical due diligence processes, we encountered several operational violations of local regulations that were not initially disclosed. These issues required significant effort to uncover, explain, and resolve, including paying fines.
It’s crucial to allocate extra time and resources for deeper due diligence, particularly around compliance with local laws and regulations.
A very overlooked area of due diligence, especially in technology, automotice, telecommunications, and aerospace industries, is the effective supply chain tracking and verification of mineral sourcing (especially for coltan) in conflict-affected regions like eastern Congo. Companies may have policies in place to assess risks and avoid conflict minerals, but the challenge lies in the actual enforcement and monitoring of these policies in regions dominated by armed groups.
The importance of conducting a thorough operational due diligence is often overlooked. It may be touched upon in due diligence but significant attention and detail is needed to fully understand the Cost of Goods, installed capacity, ability to scale and ramp capacity to meet demand in out years, and supplier capacity / risks. A dedicated team of operations experts should conduct the due diligence to understand if there will be any risks to margin, ops costs, or supply disruptions due to the inability to scale.
Some commonly overlooked or under-invested areas during due diligence include:
1) Cultural and Leadership Due Diligence:
– Evaluating cultural alignment and leadership fit is often deprioritized yet it plays a critical role in integration success
– Without a strong cultural and leadership assessment, post-merger challenges can arise affecting employee engagement, overall performance and business continuity
2) Customer and Supplier Concentration Risk:
– Over-reliance on a few customers or suppliers can create long-term volatility or supply chain disruptions
– Due diligence should assess revenue concentration by segment, contract stability and alternative sourcing options to mitigate risk
3) IT and Cybersecurity risk:
– IT due diligence may be superficial, especially when finance and HR assessments take priority
– Overlooking legacy systems, cybersecurity vulnerabilities, technical debt, software licensing risks and integration complexity can result in unexpected costs
– A deep dive into IT infrastructure, critical applications and security posture is essential to uncover hidden risks that could impact scalability and operational efficiency
4) Regulatory and Compliance risk:
– Regulatory environments are constantly evolving, and failure to assess compliance readiness can lead to unanticipated costs
– Industries with complex regulatory environments (e.g. healthcare, financial services, etc.) require scrutiny of compliance frameworks, audit history and internal controls
5) ESG Risks and Liabilities:
– While many organizations have ESG strategies, due diligence often fails to assess material ESG risks, compliance with reporting standards and sustainability liabilities
– Understanding how ESG factors influence valuation, risk mitigation and brand reputation is increasingly important, especially with rising investor and regulatory scrutiny
6) Post-Merger Integration Readiness:
– Integration challenges often arise and can erode value if integration is not proactively planned
– PMI due diligence should assess operational dependencies, cultural fit, IT integration complexity, workforce transition planning and synergies realization
– The readiness of both organizations to execute a transition determines whether the deal achieves its intended objectives.
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