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Middle Market M: Handbook for Investment Banking and Business Consulting by Michael R. Nall, Christian W. Blees, Robert T. Slee, Kenneth H. Marks

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CHAPTER 16

Due Diligence

This chapter provides an overview of some of the basic aspects of traditional or technical due diligence as applied to mergers and acquisitions, including background, process, and participants. There is a brief discussion in Chapter 3 about strategic due diligence and how it differs.

Regardless of whether an acquisition is being undertaken by a financial (i.e., private equity) or strategic buyer, or an investor or lender, the ultimate goal behind every acquisition is to create or enhance value. However, before they can truly achieve the value proposition of a deal, an acquirer and financier will face numerous pitfalls that must be considered throughout each aspect of the transaction lifecycle. Figure 16.1 provides a perspective on how to think about interconnections of the various aspects of the deal and how due diligence may play into them and the transaction.

Because each transaction has different goals and objectives, these matters greatly impact the focus and extent of due diligence to be undertaken. The due diligence process is often the acquirer's first opportunity to conduct an in-depth (or deep-dive) analysis and investigation of the financial, tax, legal, and operational aspects of a target's business. When properly executed, these efforts may reduce the overall transaction risks faced by the acquirer.

FIGURE 16.1 Transaction Life Cycle for Due Diligence

TRADITIONAL DUE DILIGENCE

Due diligence is the process used to investigate key aspects ...

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