Automobile sales are on the rise globally, and the automotive industry remains one of the hottest sectors for M&A activity. Analysts predict that the surge in deal flow that occurred during 2014 will continue or even accelerate throughout 2015. A recent report published by Ernst & Young identified the automotive industry as one of the top sectors for deal activity in the next 12 months. In addition to increased automobile sales, growth and diversification objectives, and macroeconomic factors, deal activity is being spurred by stringent efficiency standards that are pushing manufacturers to reduce vehicle weight. In response, many automotive suppliers are pursuing transactions to acquire new technologies and advanced materials.
Amid the flurry of activity, automotive companies considering an M&A transaction should engage in careful planning and preparation to prevent missteps and maximize deal value. Due diligence should start early on and be used to obtain a clearer picture of the target company, including its financial health, legal and regulatory risks, and culture. When done the right way, due diligence will help to identify issues that can shape or kill the deal. Due diligence is also essential to integration planning. When companies fail to realize all of the perceived benefits of an M&A transaction, a lack of attention to integration planning is often the culprit.
Here are some tips that will help companies get the most out of their due diligence:
- Put the team together early – The due diligence team, including internal personnel and external advisors, should be put together early. Each team member's responsibilities should be clearly defined and a timeline for the completion of due diligence objectives should be established.
- Keep it confidential – The parties should sign a confidentiality agreement to protect sensitive information and promote the exchange of information for due diligence purposes.
- Prepare and submit request lists – Due diligence request lists should be comprehensive, but tailored to fit the transaction.
- Use a data room – A well-organized data room is essential to an efficient due diligence process. Online data rooms can further increase cost-effectiveness and efficiency.
Due diligence is a critical component of the planning, preparation, and execution of an M&A transaction. Following the steps above will help to ensure that your company gets the most out of the due diligence process.
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