The Merger & Acquisition Leader's Playbook

CHAPTER 11The Deal and Due Diligence: Iteratively

The financial playbook has three components: (1) the deal and due diligence, which need to happen iteratively; (2) financing the deal; and (3) further mergers and acquisitions (M&A).

When it comes to the deal, the first of the many investments you need to get a return on is the purchase price. As we've seen, only 17 percent of deals add value. Thus, it is better not to pay enough and lose than to over pay and win one of the 30 percent of deals that require a lot of work for no gain or, even worse, one of the 53 percent of deals that actually destroy value.

We've combined our thinking on doing the deal and due diligence into one chapter as you may need to go back and forth.

Let's start with doing the deal, the expected transaction price for your investment case from Chapter 1, most likely a number somewhere between fair value and must have at any price. These might inform your opening, expected, and maximum prices.

Your target may have gone through the same thinking, yielding, for example, something like this:

You:	$30MM	$40MM	$50MM	$60MM+
	OpeningWalkaway	ExpectedMinimum	MaximumExpected	WalkawayOpening
Target	$25MM	$35MM	$45MM	$55MM

You

In this case, you think the fair value of the company is $35MM and know how to invest $10MM to add value and then sell it for $55MM. This, of course, assumes perfect knowledge, perfect ...