Commercial due diligence is the process of evaluating a company’s commercial attractiveness, commercial performance, potential, and risks. Many people buying commercial real estate don’t have the experience necessary to conclude whether a property they want to acquire is sound. Many people buying commercial real estate don’t have the experience necessary to conclude whether a property they want to acquire is sound.
Why Is Commercial Due Diligence Important?
The first reason why buyers should perform commercial due diligence is to have enough information about the target’s business allowing them to better negotiate a merger or acquisition. Also, buyers looking to finance the purchase or bring in investors will want to have reliable data on the target company to show that they are investing soundly. Investors and financial institutions want to have the assurance that the target company’s business is commercially sound and has the potential to grow over time.
What is a sell-side commercial due diligence?
A sell-side commercial due diligence is when a selling company will perform commercial due diligence on its own market positioning. Nearly half of M&A (Mergers and acquisitions) deals fail due to material issues buyers discover in the context of their due diligence. To avoid losing a deal, sellers can proactively engage in commercial due diligence to identify potential deal breakers and cure them.
What is a buy-side commercial due diligence?
A buy-side commercial due diligence, as the name suggests, is when a buying company will perform commercial due diligence on a selling company. The objective is to ensure that the buyer is investing in a good company without major commercial viability risks. Today, a company’s commercial activities are more complex, global, and rapidly changing. Buyers are interested in validating that the selling company’s market positioning is good and has the potential to grow.
In essence, commercial due diligence is a crucial part of a proper acquisition plan allowing you to identify the benefits or risks associated with a particular transaction.