There is no one reason businesses merge with or acquire other companies. Mergers and acquisitions (M&A) offer a powerful way to boost a company’s reach. Not only that, but they can also open doors to new markets, bring in cutting-edge technologies, or add valuable talent. This path holds immense potential for expansion and increased value.
Unsurprisingly, M&A is on the rise this year. The Americas accounted for the majority of global M&A activity in the first half of 2025, with $908 billion in deals. That is, 61% of the worldwide total. This marked an increase from the previous year, when the region’s deal value was $722 billion, representing 55% of the total.
Success in these big moves depends on due diligence, however. Without it, you’re basically flying blind. Here, we’ll walk you through why due diligence is absolutely central to growth through M&A.
#1 Successful Due Diligence Helps Identify Red Flags Early
One of the most obvious benefits of due diligence is that it helps weed out deals that look good on paper but are riddled with issues. This process protects a company’s interests and minimizes risks.
Financial inconsistencies are a common warning sign or red flag. This includes unclear or inconsistent financial statements. Such issues might hide debts or reveal poor cash flow management.
A famous example is HP’s acquisition of Autonomy. The information technology company revealed that it lost over $4 billion on its 2011 acquisition of the British software company Autonomy due to an elaborate fraud.
According to lawyers in a London court, Autonomy’s co-founder, Mike Lynch, masterminded the scheme to inflate the company’s value.
Cultural clashes are another significant warning. When company cultures do not fit well, it can lead to unhappy employees and low productivity. High employee turnover in the target company is also a clear sign of potential issues.
Other red flags include hidden liabilities, such as undisclosed lawsuits. These can damage a company’s reputation and bottom line.
#2 Thorough Investigation Confirms Financial Health
Numbers can lie, especially when someone really wants to make a sale. Due diligence helps you look beyond the polished pitch deck and dive deep into the real financial story.
The process involves looking closely at key financial documents. These include income statements, balance sheets, and cash flow statements. This historical review helps identify trends in revenue and expenses.
Verifying revenue streams ensures they are real, recurring, and not just a one-time fluke. Cash flow analysis is equally important. It reveals whether the company can turn profits into actual, usable cash.
Due diligence also confirms what the company owns, known as assets. According to Debtor Inspector, business assets provide a vital snapshot of its financial health and are key to enabling growth, attracting investment, and driving operational efficiency.
As this isn’t a straightforward process, many companies work with business investigation services. These professionals dig deeper, using tools and expertise to uncover hidden liabilities, off-the-books debts, or overvalued assets. These services can be a game-changer if you’re not financially savvy or simply want an extra layer of protection.
#3 Careful Scrutiny Helps in Valuing the Business Accurately
Knowing how much a business is truly worth is a tricky task. Too many M&A deals fall apart or later fail because one side overpaid. Due diligence gives buyers the insight they need to value a company accurately.
The process involves looking at many factors beyond just the numbers. The strength and experience of the management team are crucial. A strong team significantly increases value.
The customer base is another key area. If the company relies on just a few big customers, losing one could severely impact earnings. A broad, diversified customer base is generally more valuable.
Assessing the target company’s technology infrastructure and cybersecurity risks is also important. Outdated systems or vulnerabilities can lead to costly upgrades or data breaches.
The Marriott-Starwood merger is a case in point. A serious data breach affecting 383 million customer records was discovered after the acquisition, leading to fines of up to $123 million.
Data security matters to customers, too. Around 9 out of 10 customers expect companies to keep customer data safe during mergers and acquisitions.
Grow Smart, Grow Strong
Mergers and acquisitions are big moves that can either skyrocket growth or lead to regret, depending on how well they are handled.
Due diligence is not just another step to check off; it’s your strategic partner in making smart, informed decisions. Don’t take shortcuts here, or you might end up with a very expensive lesson in why preparation matters.
So, take the time to dig deep, ask the right questions, and lean on expert guidance when needed. Investing thoroughly upfront is a far wiser choice than dealing with the catastrophic aftermath of unforeseen problems.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin