Traditional vs. non-traditional due diligence
When companies are planning a merger or takeover, due diligence is one of the decisive steps in the entire process. Traditionally, it aims to gain as clear a picture as possible of the financial, legal and operational situation of the target company. However, in the modern business world, this approach is often no longer sufficient. Non-traditional due diligence, which examines aspects such as corporate culture, human capital and technological infrastructure, has proven to be just as important - in many cases even an essential success factor.
"People are the most important success factor in any merger."
Traditional due diligence includes the analysis of key financial figures, contracts, tax liabilities, production capacities and supply chains. These hard facts are essential to assess the potential risks and opportunities of a deal. After all, no company wants to be suddenly confronted with unexpected debt or inefficient processes. But while traditional approaches focus on solid data and facts, they often ignore the soft but equally critical factors that have a lasting impact on the success of a deal.
In contrast, non-traditional due diligence focuses on the less tangible elements of a company. It deals with the question of whether the cultures of the two companies are compatible, how the workforce will react to a takeover and whether key personnel are prepared to stay on board. The assessment of the technological infrastructure also falls into this area: can the IT systems be integrated? Are there innovations that could be unleashed by the takeover? It is equally important to examine the market dynamics. How will customers react to the merger? Are there risks from competitors or changes in consumer behavior?
Numerous examples of failed mergers show that these aspects are at least as important as the traditional ones. One well-known example is the takeover of Snapple by Quaker Oats in the 1990s. The financial and legal review of the deal had been carried out carefully, but cultural and market dynamic differences were massively underestimated. Quaker Oats was unable to preserve Snapple's brand identity or successfully integrate the distribution channels. The result was a disastrous integration that cost the company dearly.
So why is non-traditional due diligence so crucial?
For one thing, people are the most important success factor in any merger. Cultural conflicts or the departure of key people can derail even the best deal. Secondly, technology plays a central role in today's economy. Without a careful assessment of technological interfaces, there is a risk of massive integration problems. Finally, the dynamics of an increasingly globalized and digitalized market should not be underestimated. The expectations of customers and partners are constantly changing and companies must adapt to this.
Holistic due diligence that combines traditional and non-traditional approaches is therefore key. While traditional analysis minimizes short-term risks, non-traditional due diligence lays the foundation for long-term growth and sustainable success. Both approaches complement each other and should never be considered in isolation. Only in this way can companies ensure that they not only master the challenges of a deal, but also fully exploit the opportunities.
At a time when M&A processes are becoming increasingly complex, it is no longer enough to simply check figures and scrutinize contracts. The future belongs to companies that have the courage to dig deeper, understand the soft factors and base their decisions on a broader foundation. Because in the end, it's not just what's on paper that counts, but how well the integration works in reality.
