Acquirers See a Continued Increase in Pre-deal Due Diligence for Year Ahead

NEW YORK, June 18, 2024 /PRNewswire/ -- Many professionals (43.2%) involved in their organization's M&A efforts, including those who directly serve on or contribute to corporate development and transactions workstreams, indicate they expect the level of due diligence requested on target acquisitions to increase in the next 12 months compared to the previous year, according to a Deloitte poll. That is an eight-point increase from a similar poll conducted in February 2023 which found that 35.2% of M&A professionals expected the duration and extent of buyer-requested due diligence to increase.

According to the data, heightened due diligence efforts are likely to focus on a smaller number of deals, with 40.7% of respondents indicating plans to pursue between one to two deals in the year ahead.

"Up until recently, the M&A market had slowed down considerably over the past 24 months.  This was leading many acquirers to become more selective and focused on performance in the deals they pursue," said Jack Koenigsknecht, a partner in M&A transaction services, Deloitte & Touche LLP. "As a result, dealmakers, CFOs and other finance leaders are adapting to this environment by increasingly leveraging due diligence to identify the best targets and uncover silver linings that can help maximize value post-deal or help avoid costly issues. Currently, the quality of data and the systems used to capture it are a huge focus of diligence efforts."

For 29.1% of respondents, economic concerns are driving the need for heightened due diligence, primarily to support deal forecast models. Another 24.1% say more due diligence is needed to support a successful merger through post-merger integration planning, while 17% attributed diligence needs to the tougher lending environment.

Despite lending challenges, more than one-quarter (26.6%) of M&A professionals say their organization's primary financing vehicle for acquisitions in the year ahead will be lender financing, including third-party loans from traditional lenders, private investors, and government sources (24.1%), or high-interest mezzanine loans (2.5%). Many (30.3%) respondents indicate that cash will remain their primary financing option, while another 15.9% indicate a preference for equity financing.

"Cash is king in a tough lending environment, but not everyone has access to low-cost capital," said Bryan Martin, a partner in M&A transaction services, Deloitte & Touche LLP. "For those acquirers exploring lending options, and especially for leading acquirers, due diligence becomes a critical lever in both negotiating and securing financing terms. It's also critical for positioning the future, merged organization in the best way possible to access post-merger funding that may be needed for major capital projects, working capital issues, or some other business need."

To learn more about leading practices that acquirers can consider during integration planning, visit our website for more information.

About the online poll
More than 740 professionals involved in M&A for their organizations were polled during a recent webcast, titled "Be a prepared buyer: Acquisitions accounting and tax considerations," on Dec. 13, 2023. Answer rates differed by question.

About Deloitte
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SOURCE Deloitte