A General Introduction to Due Diligence: Look Before You Leap vii
Introduction
An average consumer in today’s digital age has greater access to information
than at any time in the past. Before purchasing a bicycle, for example, a con-
sumer can obtain detailed product information and technical specifications,
read reviews and recommendations, and compare the bicycle with similar
offerings from the manufacturer or its competitors. Using such information,
the consumer can assess the bicycle’s components and quality, consider the
appropriateness of its price, identify any potential concerns (or “red flags”)
that would support a decision not to purchase the bicycle and, ultimately,
make an informed decision—to buy or not to buy—without the fear of
buyer’s remorse. Today’s consumers would undoubtedly agree that scientia
potentia est, or “knowledge is power.”
That Latin aphorism is no less true in the context of acquiring a business
or making an investment decision. In the context of mergers and acquisitions
(M&As) and venture capital or growth equity investing, potential acquirers
and investors, respectively (referred throughout this chapter, collectively, as
“acquirers”), are presented with business opportunities that would require
significant investments of time, money and other resources, and each oppor-
tunity must be evaluated for its potential risks and rewards. However, unlike
the bicycle, information about a potential target (e.g., financial information,
business development plans, clinical trial data, etc.) is rarely publicly avail-
able (unless the target is a public company that files reports with the US
Securities and Exchange Commission) and, in most cases, inaccessible to an
acquirer without engaging in an information-gathering process directly with
the target. That process is known as “conducting due diligence” and is the
A General Introduction
to Due Diligence:
Look Before You Leap
Introduction
An average consumer in today’s digital age has greater access to information
than at any time in the past. Before purchasing a bicycle, for example, a con-
sumer can obtain detailed product information and technical specifications,
read reviews and recommendations, and compare the bicycle with similar
offerings from the manufacturer or its competitors. Using such information,
the consumer can assess the bicycle’s components and quality, consider the
appropriateness of its price, identify any potential concerns (or “red flags”)
that would support a decision not to purchase the bicycle and, ultimately,
make an informed decision—to buy or not to buy—without the fear of
buyer’s remorse. Today’s consumers would undoubtedly agree that scientia
potentia est, or “knowledge is power.”
That Latin aphorism is no less true in the context of acquiring a business
or making an investment decision. In the context of mergers and acquisitions
(M&As) and venture capital or growth equity investing, potential acquirers
and investors, respectively (referred throughout this chapter, collectively, as
“acquirers”), are presented with business opportunities that would require
significant investments of time, money and other resources, and each oppor-
tunity must be evaluated for its potential risks and rewards. However, unlike
the bicycle, information about a potential target (e.g., financial information,
business development plans, clinical trial data, etc.) is rarely publicly avail-
able (unless the target is a public company that files reports with the US
Securities and Exchange Commission) and, in most cases, inaccessible to an
acquirer without engaging in an information-gathering process directly with
the target. That process is known as “conducting due diligence” and is the
A General Introduction
to Due Diligence:
Look Before You Leap