Mergers and acquisitions (M&A) — consolidating multiple companies through a series of transactions — will likely be a hot market over the coming years. One analysis by EY estimates that cooling inflation and a potential drop in interest rates could help fuel a 20% growth in corporate deals in 2024. This trend is great news for emerging accounting majors, as it signals a growing need for talented accountants.
However, navigating a corporate deal requires much more than number-crunching skills. The financial professionals involved in these deals must be well versed in every level of a business’s operations, which is one reason some accounting professionals pursue a Master of Business Administration (MBA) prior to entering the workforce. Advanced business programs specializing in accounting, such as the William Paterson University (WP) online MBA with a Concentration in Accounting program, fosters the comprehensive financial knowledge necessary for graduates to navigate the world of M&As.
Understanding Due Diligence in Mergers and Acquisitions
The Corporate Finance Institute (CFI) defines due diligence as the “verification, investigation, or audit of a potential deal or investment opportunity.” In other words, it is the financial research that both parties conduct before closing a deal fairly.
At its core, due diligence in M&A is like examining an engine before you buy the vehicle. As a buyer, you must ensure a fair price for a fully functioning car. As much as you’d like to trust the dealership, you have no one to blame but yourself if you get stuck with a lemon. This same process applies to buying companies.
Both parties have an interest in financial transparency during a merger or acquisition:
- The acquiring company wants to ensure it’s paying a fair market price, given that company’s current revenue, assets, liabilities and financial forecasts.
- The seller wants to lock in a fair price, given all the same factors.
M&A Due Diligence Goals
According to DealRoom, acquiring companies will typically ask for information about the target company’s finances, products, customers, employees, internal operations, legalities, intellectual property and physical assets. By digesting all of this information, the acquiring company hopes to achieve five main goals:
- Identify potential risks and liabilities: Both the buyer and seller aim to identify potential problems with the deal, such as environmental issues, tax oversights or a culture mismatch.
- Value the target company: During the due diligence phase, both companies will work to establish a fair market value for the company. This is a tricky step, as a company’s value is subjective and can fluctuate drastically from year to year.
- Understand the target company’s business and operations: The acquiring company will want to fully assess the new company’s operations to uncover potential opportunities or risks, since it will be responsible for running the new company after the deal is complete.
- Recognize potential synergies: Companies often look to acquire companies that supplement their existing operations. This can mean purchasing a rival company to gain market share or acquiring a company in an unrelated industry to grow horizontally.
- Comply with legal and regulatory requirements: The due diligence phase is also critical for helping both companies understand and address potential legal, financial and regulatory issues.
However, proper due diligence also examines non-monetary aspects of the deal. According to the law firm Foley & Lardner, there are five types of non-financial due diligence: legal, operational, technical, customer and team.
Advancing Your M&A Knowledge
Due diligence in M&A is a wide-reaching topic that requires a high level of business knowledge. This necessary expertise is why M&A professionals almost always pursue an MBA. This advanced degree sets graduate students up for success in the job market, communicating to employers that they thoroughly understand accounting, taxes and other financial verticals, such as pensions, partnerships and leases.
Graduate students can even complete some programs, like WP’s MBA in Accounting, fully online with minimal disruption to their day-to-day lifestyle. Graduates of this program develop advanced accounting knowledge, along with strategic thinking, leadership and data analysis skills that will help them diversify their career options.
Learn more about the William Paterson University online Master of Business Administration with a concentration in Accounting program.
