Effective Due Diligence is Critical
We had been invited to complete an independent due diligence of an organisation before an investor decided to commit himself financially and join the board. For reasons of confidentiality, we cannot describe those involved in any greater detail, but we have seen many acquiring businesses fail to assess key personnel and test key processes prior to investing. They have often paid a heavy price for relying too heavily on financial and market due diligence alone.
In this occasion and again more recently, we have been able to alert the investor to serious issues and ensure that any subsequent negotiations were completed with "eyes wide open". In the first case, we discovered an unreported financial risk that threatened the future of the business - by being too focused on "day-to-day" issues, the existing management had completely failed to see the risk or its potential impact.
In the more recent example, we identified a performance and competency issue. The business had grown rapidly, but due to the close relationship between the Chair and the CEO, it was not obvious that this executive was no longer coping.