Due diligence – what’s that all about?

Believe it or not, if you’re a mid-career change professional, especially if you’re at either a large firm or at a small firm with a lot of cash and an appetite for “acquisitions” and “partnerships”, you will be pulled into the due diligence process, with or without your knowledge. It’s always better when you explicitly know that you are being asked to gather information and provide insights, all under the ‘cloak of darkness’, but that’s not always the case. Sometimes you have been asked and you have answered and not even known you’ve done so. Therefore, let’s try to find ways to avoid that. 

Just what is “due diligence” anyway?
Have you ever been car shopping? It’s a big purchase and you’ve got a couple of things to make decisions on:

  • The make, model, and trim
  • Finance or lease
  • New or certified pre-owned or non-certified pre-owned

The above areas of consideration are tightly interlinked with questions like:

  1. What can I afford to spend? Now or over the next few years?
  2. What best fits my needs? Or my family’s needs?
  3. How often will I drive the car? Do I want to make after-market modifications to it?
  4. Where will I park this car? What are the weather conditions in my area?
  5. Do I own another car? How will I balance between the two (or three or more!)?

Sorting out all of the above makes car shopping the equivalent to “M&A”, or, executing a merger or acquisition. Once you narrow down to a few final car options, then you dig deeper and that is due diligence. How do you dig deeper?

  1. If it’s a used car, how many miles and what type of miles were driven?
  2. If it’s a new car, does it come with a maintenance package and what does that include? What are the upfront costs? What are the projected costs?
  3. Where is the service center? Or can I use any service center?
  4. What will gas cost me over time?
  5. Does this color of car often get me tickets? Is there an insurance differential based on color, type, and location?
  6. What are the differences between financing or leasing and upfront/downpayment, and rolling in taxes and fees or…?

Similarly, companies that are engaged in M&A activities must perform their own version of due diligence or “kicking the tires”.

Signs that a “secret” due diligence exercise is being conducted
There are all sorts of signs you could attempt to say point out a secret due diligence exercise, but here are two that always raise glaring red signals to me: unfamiliar faces and unfamiliar questions.

Now, this is probably happens more if you’re existing in a BAU sort of world – you come in, do your job, have coffee, get things done, water cooler time, eat, do more work, go home, and the regular rhythms are there, wash, rinse, repeat. However, one day you come in, and…

  • Suddenly a decision is made to move your team from one floor to another to “make space” in a temporary fashion for a group of outside contractors to help complete a “financial exercise”
  • There are a lot of hush-hush-spirited whispering-closed doors-long faces from a certain level of management – too senior to be day-to-day, but not quite senior or experienced enough to maintain the poker face
  • Also, rumors
  • Also, questions that are less along the lines of “when are you going to get that contract finished” or “how many contracts did we complete in the last quarter versus the last 5 quarters?”
  • Requests for information in various splices and slices

Now, this could point to a significant re-shuffle or change in senior management. Or it could point to a single new, strategic hire being brought in.

Or, it could be something bigger.

Don’t be an alarmist, but folks, keep your eyes and ears open. If you have been around a company long enough, you know, in your gut, when the energy of the office, the “air” of it has had a change in tenor or flavor. It never hurts to pay a little extra attention and to think about the bigger picture, no matter what your level because if you’re interested in your job, however that shapes out to be, you ought to be interested in the environment in which you conduct that job.

All due diligence isn’t secret
True. Some companies are open about the options their pursuing. Some companies hire a team of consultants, put them on a blacked out, locked conference room with a sign that all but says “something is afoot”, and at certain points in time, if it’s mutual, CFOs meet and CEOs meet and CIOs meet and key leaders are pulled in.

But, 1) do not assume public versus secret due diligence is mutually exclusive, it isn’t, and 2) there are quality concerns that must be weighed in both approaches.

Okay, understood, but how does this impact me?
I targeted this post towards “mid-career change professionals” for a reason and that’s because, whether or not you know it, you hold some pretty useful keys.

Let’s be brutally honest: most senior managers at mid-to-large-to-mega organizations are not necessarily aware of the hobgoblins / landmines / secret pots of gold, buried a few layers deep and away from beautiful metrics, pretty reports, and high-level analysis / strategy / operating model / [fill in the blank] / ad-hoc decks.

That statement is not a value judgment. It’s just the nature of organizations; a single person can’t know everything. Similarly, even a well-informed, interested, and active team of senior managers can’t be expected to know every, tiny little item.

So, bringing this back to you, the mid-career change professional:

  1. You’re probably situated at a level in the environment where:
    • You still have the time, energy, and space, to track downwards to more individual levels of responsibility, accountability, and information
    • The nature of your role requires a certain level of ability to “speak to power” (I’ll reserve speaking truth to power for another day); you have stronger influencing abilities
    • Change organizations, eventually and generally more quickly than operating / BAU organizations, roll up into the executive decision-making level; your words can more quickly through the chain
  2. You recognize the levers that drive change (i.e. people, process, and tools) and can balance them against the “golden triangle” of projects (time, scope, and cost) – and isn’t M&A all about change
  3. You can communicate in the language of change: issues versus risks versus influence, KPIs and metrics, data that speaks, controls, policies, costs, contracts, business benefits, strategies, assumptions

Ultimately, what I’m saying is that as a mid-career change professional, you could be in the perfect position to influence great change as long as you remain aware enough to:

  1. Recognize the signs of due diligence, i.e., the signs of impending M&A
  2. Figure out how you may be involved in the due diligence process (and so even a “secret” exercise is effectively “public” to you)
  3. Determine how you can play a more active and/or critical role and piecing it all together, providing insights that link end-to-end, and serving as a powerful organizational pivot point

So, what do you think? Is there something to this? I’m curious about life in the trenches – let me know below in comments or send me a quick note.

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Also, let’s start a conversation! Please comment below or send me an email at cassandra@cassandrajohn.com.

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