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The acquisition appears to fit all of the criteria specified by the investment committee. In addition, the owner has been very forthcoming, and your sales force seems to know the new business quite well. Timing is critical since there are other potential suitors. As such, there is pressure to consummate the deal.

Still, doubt can arise since “you don’t know, what you don’t know.” Executives will and should ask you to provide the detailed rationale behind the acquisition. The owner of the target can provide some of the insights, but he is obviously biased. Thus, a third party, independent evaluation of the target company and its market could add extremely valuable perspective to the deal. This evaluation should be comprehensive yet very timely. Issues to be considered might include:

  • Addressable market size (units and dollars)
    • By market segment
    • By product type
    • By geography
    • By distribution channel
  • Segment growth
  • Evaluation of the true decision makers in the channel
  • Economic drivers of demand
  • Opportunities for expansion (domestically and internationally)
  • Market share analysis (current and dynamic)
  • Profit margins throughout the channel
  • Key regulations (current and pending) affecting the market
  • New products or technologies that may be disruptors
  • Potential market synergies in the transaction

The study should focus not only on the current market but also the projected changes in the market over time. The market evolution over the next five to ten years is of paramount importance. The economic factors that are driving the market may not be properly uncovered when speaking to the target company. As such, you as the acquirer should hear from other market participants (customers, suppliers, and competitors) to identify and quantify the potential risks to the transaction.

At some point, a decision needs to be made whether or not to pursue the acquisition. Making this decision with input from a third party independent evaluation will give you significant perspective that might cause you to change your decision or to modify the terms of the deal. Either way, you will make a more informed decision.

Input from the study is also valuable months later when executives ask you to revisit the rationale behind the deal. The insights uncovered in the commercial due diligence study can also help give the acquirer a jump start in integrating the target into its current organization.