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Doing Diligence Right: How to Protect and Drive Deal Value in Disrupted M&A Markets

Why this year, acquirers must take a different, more integrated approach to due diligence

Brian Major, Pilar Tarry and Sean O’Flynn
Doing Diligence Right: How to Protect and Drive Deal Value in Disrupted M&A Markets

Heading into 2023, M&A dealmakers are facing plenty of macroeconomic headwinds. As they adjust to a new dealmaking environment, acquirers will need to rethink their due diligence strategy to continue delivering value.

The dealmaking boom of 2021, which drove both deal numbers and valuations to new highs, faced significant disruption in the latter-half of 2022. Last year, the total value of deals fell 37%. Worldwide, private capital is sitting on as much as  $3.4 trillion of “dry powder”—assets under management that have not yet been invested—but executing deals has become increasingly difficult due to disruption in geopolitics, supply chain and capital markets.

These conditions also contributed to a growing mismatch between the pricing expectations of buyers and sellers, while access to affordable financing has emerged as among the most notable of challenges today.

As closing deals become tricker, the basic deal thesis is also evolving. In the high-growth market coming out of COVID, the value of many deals was predicated on reliably rising sales. As a result, the diligence process gave heavy emphasis to commercial value creation opportunities, often with a reduced focus on the operational and technology infrastructure needed to support it. Every experienced private-equity leader knows of a deal that didn’t deliver because of problems diligence failed to find, such as the unanticipated risks associated with a business’s operations, technology, governance and controls drove negative outcomes.

Going into 2023, buyers should approach due diligence differently.

To create greater certainty around realization of deal value, they must embrace an integrated, value-led due diligence process. That is, they must integrate operational, commercial and technology levers in the diligence process—and they must do so in a way that maps directly onto robust, integrated post-close value capture plans and actions—while understanding the potential risks and mitigation.

Related content: Reputational Due Diligence: Cautionary Tales in M&A

Going into 2023, buyers should approach due diligence differently.

The diligence report itself and pre-close “road show” need to be very different than years prior. The broader set of co-investors and lenders needed to get deals closed now demands rich insights into the deal thesis, value creation plans, and execution risks. They want to see that the operations are sound, the commercial story is well grounded, and the technology roadmap is clear. These must be told as a single, consistent story that is compelling to a broad range of stakeholders (including sellers), all with highly varied investment requirements and potentially conflicting objectives.

Why Should Dealmakers Think About Integrated Value-Led Due Diligence?

An integrated value-led due diligence process more effectively identifies risks and opportunities in a deal. There are several reasons why dealmakers should consider this approach.

First, as buyers are looking to wider and more diverse sources of funding, they need to understand and address those investors’ often-differing requirements and value propositions. Addressing these diverse perspectives is critical in a challenging market. An integrated approach to due diligence can create common ground about the drivers of value and how to both realize and protect it.

Second, businesses are facing new challenges from an unpredictable, volatile economy in which past performance is no longer a meaningful indicator of future success. Higher inflation; slower top-line growth; increasing global supply chain complexity; greater integration of commercial relationships, operations, and technology; and expensive capital all put enormous pressure on the critical first 12-24 months of ownership. Sophisticated buyers must place increased scrutiny and control on the levers to drive EBITDA and cash during this period with evidence of a rapid and robust plan to execute on value creation initiatives.

Related content: Investors Brace for a Bumpy Ride

Understanding and underwriting a deal requires a clear, consistent view of near-term EBITDA and cash performance levers. The approach should be based not on isolated assessments of the external market or light-touch assessments of the operations and cost base, but by a deeply integrated diligence of the value thesis for the deal and the interplay of an asset’s commercial activities, operational infrastructure, operating model, and technology enablement to support this.Integrated, value-led due diligence must also consider the potential headwinds and risks that can derail a deal thesis, and the mitigation plans to address these.

The third reason: speed. Approaching due diligence with integration in mind allows buyers to realize value faster. With lower deal flow and significant dry powder in private markets, buyers—private equity or strategic—face increased competition, which intensifies the pressure to compress “award/offer to close” timelines. The period between signing and closing can be crucial to translating the findings of the due diligence activities into value creation action plans and further examining red flags identified during earlier phases. Minimizing friction and hand-offs during this phase is a key to success in capturing the value as early as possible once the new owners are in place.

Businesses are facing new challenges from an unpredictable, volatile economy in which past performance is no longer a meaningful indicator of future success.

How to Approach Integrated Value-Led Due Diligence

How should buyers approach integrated, value-led due diligence? Four factors make the difference:

  1. Understand the importance of a value-led lens to integrating operational and technology value creation levers with the drivers of commercial value. You risk creating myopic views if you separate the diligence of commercial value levers (pricing, product, go-to-market, customer success) from the operating model, operations, and technologies required to pull those levers. The strategic and commercial teams for one asset we at AlixPartners advised on, for example, had forecast 14% revenue growth without considering that the target was already running its plants at full capacity and would need additional capital to realize the commercial plan.
  1. Assemble a team with experienced and senior people, who understand how to execute value creation plans and can support you in engaging the capital markets.Good value-led diligence is not a box-ticking exercise. As the demands of increasingly diverse funding stakeholders add more complex perspectives, having a senior, experienced team to identify and articulate how value will be realized will be critical to successful dealmaking in 2023 and beyond. Co-investors need confidence in both the soundness of the deal thesis and the ability of the team in place to execute and rapidly deliver.
  1. Focus on value creation, but don’t discount risk mitigation. 2023 is set to be a highly complex economic environment in which to do business. Even the most robust plan can be buffeted by unforeseen headwinds. Integrated, value-led diligence will help teams anticipate risks and identify the ways to mitigate and manage them.
  1. Design a diligence process that operates seamlessly—from signing to closing and beyond. When diligence is done rightand transitioned to a value capture planit’s a process, not a project. Too often, the team required to realize value creation plan is not involved early enough in the deal process. The diligence team should ideally be working with management to stand up the programs required to drive value creation initiatives prioritized during diligence. An AlixPartners team advising one multibillion-dollar telecommunications company identified more than $1 billion in savings—and captured 40% of that within the first year. Getting that kind of early return demands a willingness to invest in the continuity of value-led diligence outputs that can be seamlessly transitioned into the sign-to-close planning and ultimately an actionable day 1 program to realize value.

In the 2023 M&A market, focusing on these four key elements has never been more essential.


AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York and has offices in more than 20 cities around the world.

Brian Major, Partner & Managing Director and Global Co-Leader for the M&A Advisory Group at AlixPartners. Brian has more than 20 years of experience leading high impact performance transformations and restructuring across all elements of operations and strategy, including extensive experience serving private-equity firms across the entire investment lifecycle.  

Pilar Tarry, Partner & Managing Director and Global Co-Leader for the M&A Advisory Group at AlixPartners. She has more than 20 years of expertise in helping corporate and private equity clients create value through all phases of the transaction lifecycle.

Sean O’Flynn, Partner & Managing Director and EMEA leader for the Mergers & Acquisitions Advisory Group. He has  more than 20 years experience in supporting private equity and corporates in driving buy-side and sell-side acquisition and divestment engagements focusing on complex operating model transformations and post deal value creation.