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Buy-Side Commercial Due Diligence: What is it?

February 21, 2023

By: Brad Gerick

Commercial due diligence is a make or break process in mergers and acquisitions.

In buy-side due diligence, the focus is on the acquiring party, rather than the target company. This makes it distinct from sell-side due diligence, which is conducted by the organization that may be acquired.

Buy-side commercial due diligence looks extensively at the target company’s financials, operations and overall viability. It’s typically conducted by private equity firms, investors or other acquiring entities to evaluate risks and opportunities before signing on the dotted line.

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We’re going to explore the key aspects of this process in private equity acquisitions, including financial analysis, commercial viability assessment and target company analysis.

Financial Analysis in Buy-Side Due Diligence

Financial analysis is a crucial aspect of buy-side commercial due diligence.

At this stage, the buyer reviews the target company’s financial statements, including balance sheets, income statements and cash flow statements.

This helps identify potential financial red flags, such as declining revenue or high levels of debt. Too many warning signs could turn the buyer off from closing the deal.

Also Read: What is Commercial Due Diligence?

Commercial Viability Assessment for M&A Deals

A commercial viability assessment is also an essential component of buy-side due diligence.

It involves evaluating the target company’s market position, competition and the regulatory environment in which it operates.

This step helps the buyer understand the target company’s growth potential, profitability and competitive landscape.

Target Company Analysis for M&A

Target company analysis is another aspect of buy-side due diligence, and it usually comes toward the end of the process.

While the entire due diligence process evaluates a target company, the goal at this stage is to review operations, management and culture. This is how the buyer identifies issues that could affect the acquisition’s long-term success.

Target company analysis also helps the buyer – usually a private equity firm – understand the potential synergies between the target company and their existing portfolio companies.

Buy-side due diligence is a critical process in private equity acquisitions, enabling buyers to make informed investment decisions.

BluWave has expertly vetted commercial due diligence resources on standby to provide comprehensive support during the buy-side due diligence process.

Our research and operations team will connect you with the best fit for your project, ensuring that you have access to the right expertise at every step of the process. Set up a scoping call today.