Market due diligence, often the most critical aspect of diligence, is becoming even more important. The risks of doing deals are higher than they have been in recent memory. Drivers (related to lender interest in market data, the need for industry/sector attractiveness assessments, the demand for analysis of the target’s attractiveness/positioning, equity vs. debt allocations, and other issues) are making buyers even more apt to utilize outsourced market due diligence.
Unlike other aspects of due diligence, market due diligence does not base its findings on information provided by the company. Instead, market due diligence involves gathering data from industry experts, competitors, customers, and sometimes suppliers and other third-party market participants. In niche markets, it is essential to gain the perspective not only of customers, lost accounts and prospects, but third party market experts, and, most importantly, direct and indirect competitors.
Market due diligence therefore provides a “more accurate, independent, future-centric, and ultimately more reliable view of the…prospects of the business.” (“Counsel: Commercial Due Diligence and Acquisitions,” The Edge Malaysia, Issue 759, Marcus van Geyzel, June 15, 2009).
While those involved in M&A seem to hear more about financial and legal due diligence, “the core of every transaction” is the market due diligence. “Financial and legal aspects are only tools necessary to complete the transaction.” (KPMG Benchmarking Study – Internal Commercial Due Diligence, February 2009). Market insights are the most critical aspect of all due diligence because they are not only helpful in facilitating a Go/No Go decision on the deal, they are also instructive in pointing out a strategic direction for the newly acquired target, post-closing. The ability to gain access to a vast array of market experts (customers, competitors, third-party market participants) is one of the key benefits of outsourcing market due diligence.
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