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This content is produced by The Australian Financial Review in commercial partnership with KPMG.
When it comes to realising the value of an M&A; deal the importance of getting the due diligence process right not only remains an integral factor but it's evolving beyond the traditional role of a bunch of suits sitting around in a data room poring over the legal, tax and accounting records.
In the most recent KPMG M&A; Outlook Survey the whole merger implementation process has taken on a new level of importance, especially in the eyes of the operational side of management. The big questions being asked are whether the new business is a strategic fit and if there's a solid integration plan in place for the merger implementation.
What this means for a business is really getting in under the hood and going well beyond the usual numbers and compliance game.
It's something Meredith Paynter, M&A; specialist and partner at law firm King & Wood Mallesons, saw first-hand a couple of years ago when she was doing a transaction for an Asian client.
"They were disinterested in the data room but they were deeply interested in site visits and spending a lot of time with the management team. It was quite a different approach to diligence."
For Paynter, it made a lot of sense as the client was buying into a foreign market and they probably took it for granted the legal and accounting were up to scratch. What they did not know was the actual workings of the operation and whether they would be comfortable with their counterparts.
Cultural issues
KPMG's head of deal advisory in Australia David Heathcote agrees the traditional pieces of diligence are well understood but "when you look at transactions where value is lost, it's really through that integration work".
"It is all around some of the operational issues, the cultural issues, the risk and governance issues, the physical location and environment. If you're not fully, appropriately assessing those things and having someone who actually has a plan to implement, it can actually reduce the value of the business materially."
Heathcote also says there's an increase in companies "kicking the tyres" in terms of a business's physical assets such as property and environmental commitments.
Another growing area is data analytics, where businesses can go beyond the books and really delve into a firm's operational performance.
Mercer's chief operating officer in Australia, Andrew Godfrey, agrees everything we do now has got data at its core.
"We're all holding so much data and how effective we are in utilising, understanding, protecting and then leveraging that data is the key."
With these extra layers of due diligence, a lot of the "nuts and bolts stuff" is now done before a transaction starts, says KPMG's deal advisory partner Peter Turner, so people can focus on the things they want to do.
"Getting an understanding of what a partner is bringing to the table so we're seeing the process evolve more, so as to make transactions successful."
Right people
Unified Healthcare Group (UHG) co-founder Nicky Carp says it is really about getting an understanding of the team of people behind a business.
"It's not just meeting the CEO or the CFO, it's meeting the right people from within the organisation. If it's a technology company, it's a deep understanding of the technology and having experts look at that.
"To be honest, the financials are less important to us I think than everything else – what's under the hood, really under the hood."
For Five V Capital's Adrian McKenzie, who started the fund last year, getting the technology and data story right is integral to getting implementation right.
Regarding his investment in UHG last year, he says any modern service organisation, "as opposed to somebody who's digging things out of the ground, has got to have invested heavily in technology".
"How fit for purpose are their systems to enable them to do what they do? Moreover, I think fit for purpose can be quite different from cutting edge because you don't need cutting edge to be fit for purpose."
He says it's all about getting a broad understanding of the key stakeholders in any business.
"Clearly the numbers do play a big part but you've got to broaden your understanding of a business by engaging with as many internal and external stakeholders as possible."