Dynamic due diligence : an entrepreneurial business planning method for evaluating mergers and acquisitions: theory, case application and general implications

This paper presents a method for conducting dynamic due diligence to evaluate Mergers and Acquisitions; demonstrates its effectiveness in a particular case; and extrapolates its theoretical and practical implications to the general case. It may be called the ‘ECIPP’ method - an acronym for: Establishing mandates; Creating projections; Identifying issues; Prioritizing procedures and Performing them.

Two established alternative due diligence methods are examined. The prevailing finance-theory-based procedure has the virtues of simplicity and elegance; the vice is abstraction. The prevailing practitioner-based regime has the virtues of thoroughness and concreteness but the vices of rigidity and inefficiency. Resolving the tradeoffs inherent in both static prescriptions provides an opportunity for a dynamic, innovative approach derived from grounded theory and an application of Hindle’s (1993) theory of venture renaissance through application of an enhanced paradigm of Entrepreneurial Business Planning. The ECIPP method retains simplicity, concreteness and thoroughness but eliminates abstraction, rigidity and inefficiency.

This is demonstrated in a case. ChildCo’s CEO had only one month to complete his M&A evaluation; no expertise or previous experience; severely limited budget for the exercise and had been flatly informed by prevailing M&A experts that what he wanted could not be done. Using the ECIPP method, the CEO and the author did it: on time, within budget and to the satisfaction of a previously skeptical board of one of the world’s largest multi-national companies including arguably the world’s most professional corporate M&A division.

The replicability logic of the case research permits two generalisations. (1) ECIPP extends the range and utility of Entrepreneurial Business Planning as a management technology, well beyond the constraints to which it is usually confined. (2) The ECIPP method of dynamic due diligence is an innovation worthy of mature consideration and further investigation by theorists and practitioners in the M&A field, in the disciplines of both Finance and Entrepreneurship and, well beyond, in the realms of general management theory, methodology and practice.