On the Nature of Due Diligence in a Search Fund Acquisition

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May 09, 2022

by an investor from Colgate University in Farmington, CT, USA

A primer exploring the action steps necessary for a successful due diligence program


Case note authors: Andrew Seth Jacobs and A. J. Wasserstein


When an aspiring search fund entrepreneur successfully identifies an actionable acquisition target, they must cross one of the final bridges prior to ascending to the CEO role – due diligence. Due diligence is the process of evaluating the target company in granular detail to ascertain whether the business the search entrepreneur thinks they are purchasing is actually the business they are buying. It is a multi-pronged and multi-month process that thoroughly explores many facets of the target company to give the entrepreneur, creditors, and investors a deep and meaningful understanding of the business.


Due diligence is a bespoke process since every target company is unique and will require examination of the appropriate items for that specific company. Of course, many core diligence components are common to all companies. This case note is a primer on due diligence intended to provide a simplified, general overview of the action steps necessary to execute a successful diligence program. For searchers pursuing diligence on an active target, we encourage them to customize this guidance further with the databases, third-party advisors, and other services recommended in this case note. Investors or industry advisors may also be able to provide more detailed diligence checklists.



For the full case note, go to

https://yale.app.box.com/s/o8tqtt8ov8pd8g2hduwrcmz6dofxwfdu

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Reply by a searcher
from IESE Business School in Fortaleza - CE, Brasil
Thanks for sharing the report! The multi-pronged due diligence approach is crucial for identifying key risks, especially across financial, operational, and legal areas. I appreciate the clear breakdown of the confirmatory diligence pillars. The emphasis on commercial due diligence is particularly important, as it helps assess market conditions and competitive positioning, which are critical for ensuring future growth.
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Reply by a searcher
from Yale University in Washington, DC, USA
Thank you Professor Wasserstein! Having had the opportunity to work with Andrew, we appreciate that this case note is a result of many hours of hard work, thorough research and interviews with active searchers, investors, operators, and service providers. Excellent reference material for anyone in the search fund community!
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