An in-depth look at transactional data is irreplaceable
Companies that want to achieve growth and manage risk today must have a solid technology strategy. For deal-makers looking to buy a company or a company readying itself for a sale, typical due diligence entails a review of the company’s financials, taxes, operations and legal standing. And even though technology has become more central to operations of most companies, some buyers and company owners are not taking the time to understand the company’s technology platform, which could lead to undesirable results later on down the road.
As one industry expert put it: “It’s like buying a car that looks great, but never checking the motor. You need to look under the hood.”
Technology is at the very core of all businesses today and buyers, in particular, need to review all potential investment opportunities with a technology strategy in mind. It’s important to note that this is not relegated to certain industries. Across all industry verticals technology is both an enabler of top-line growth and bottom-line savings, as well as a first line of defense for security and privacy concerns.
Prior to the practice of looking at transactional data, potential buyers would review profit and loss statements and trial balances without the detailed understanding of what areas the company was performing in and where there were weaknesses. This deep drill down into the data allows buyers and seller to answer questions they never have been able to before, like what customers are we at-risk of losing? What is the real customer retention rate? Why are certain geographic markets underperforming? What products and services are creating the most and least margin? Are products priced correctly? Which end markets are we failing to penetrate? And does our product portfolio contain the right mix? Being able to answer these types of questions allows buyers to make informed decisions about where the business is headed and why.
Additionally, while no one likes to see a deal re-traded, it’s important that buyers negotiate deal terms with as much undisputable information as possible. Very often completing this deep drill down will uncover negative trends in businesses that give the buyers leverage to negotiate a fairer price, and then buy the business and unlock value they wouldn’t have realized was sitting beneath the surface. Negotiating from either side of the table in today’s deal market without this information can be dangerous.
The bottom line is buyers and sellers don’t truly understand what is driving the results unless there is an analysis at the transactional level. Obtaining a detailed understanding of a company’s revenue and profitability is the only way to understand a company’s current performance and how the company can be managed to optimize future results.