Corporate Acquisitions: Using Due Diligence to Distinguish Diamonds from Cubic Zirconia
The essence of due diligence is predicting the future, predicting what is likely to happen after the deal has closed. Studies by major consulting firms indicate that one-third to one-half of all corporate acquisitions are subsequently undone. Although the primary reason arises from a cultural mismatch of the two businesses, a large number of these fail because of nasty surprises that effective due diligence would uncover. Due diligence should be a comprehensive process that assists top management in predicting the future performance of an acquisition target. Thus, an effective due diligence process is the key to increasing the probability of discerning what is real from what only looks real.