Worldwide M&A deal value reached $3 trillion in 2023—a 35.5% drop from 2021’s all-time peak of $4.7 trillion, according to PitchBook’s 2023 Annual Global M&A report. Though last year was M&A’s second-weakest year in a decade, the rates of decline appear to be slowing and 2024 shows promise that the worst may be behind us, PitchBook analysts say.
As valuations finally show signs of stabilization, companies are more willing to sell again, suggesting M&A activity could pick back up in the year ahead—an exciting outlook for corporate development teams.
What is corporate development?
Corporate development is a business function of a company focusing on growth strategy. Many companies staff a corporate development team dedicated to these initiatives.
Tim Van Tuyle, a member of the corporate development team at leading cybersecurity company and PitchBook client Palo Alto Networks, explains how his work supports other teams within the business.
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Our business units focus on building great products internally, and they ask us to have a perspective on what's going on externally in the industry. We try to identify external innovation by being data-driven and objective, so we use PitchBook to inform our teams on market activity." |
Teams like his create and pursue growth opportunities, long-term success, and competitive developments through mergers and acquisitions.
What is M&A?
Mergers and acquisitions (M&A) are deals involving the consolidation of companies through a financial transaction.
Though often used interchangeably, mergers and acquisitions do represent different kinds of transactions. A merger, also known as a merger of equals, happens when two similarly sized companies come together and form a single entity. An acquisition takes place when one company purchases another and establishes itself as the owner.
The type of target a company selects often reflects the type of growth strategy the merger or acquisition hopes to accomplish.
Common types of M&A
Horizontal merger |
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Product extension merger |
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Market extension merger |
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Conglomerate M&A |
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Vertical merger |
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Reverse merger |
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What is due diligence?
Simply put, due diligence is an investigative assessment of a company’s performance, financial health, and strategic fit. It is a crucial step in dealmaking for accurately verifying and cross-checking information. During the due diligence process, an acquiring company will fastidiously examine every part of a target company, including historical and current financial statements, all available documentation, intellectual property and software, HR and culture, legal records, and so much more.
This process helps an acquiring company understand how their target’s business works, and whether it is a good fit as an investment. It also assists in mitigating risk. Just as a buyer of a home would conduct a thorough inspection for water damage or structural problems, an acquirer of a company uses due diligence to uncover legal troubles, compliance issues, or any other risky activities.
Good due diligence can help or challenge an acquiring company’s target selection. Van Tuyle explains how corporate development teams are involved in this process.
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It’s easy for anyone to have preconceived notions about the quality of a potential new sector. We can inform our teams with data on how the market is reacting to a trends and how investors are capitalizing on it to help determine if it is something we should further investigate.” |
Van Tuyle notes that beyond evaluating whether a selected target is a good strategic fit, due diligence also helps identify the likelihood of a target’s availability and growth trajectory.
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If a company has recently raised a large round, they may be less open to acquisition. Headcount trending can also be an interesting data point. We can use those kinds of signals to refine our strategy of engaging with potential acquisition targets.” |
Importance of due diligence for corporate development
When it comes to performing due diligence, corporate development teams are intentional and thorough. Logan Atkins, Investment Banking VP at PitchBook client AGC Partners, describes his experience of supporting corporate development teams.
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Corporate development teams come back with very specific questions about the product, the technology, the competitive landscape, and the employee census and headcount.” |
As part of the due diligence process, the target company will provide relevant documentation, but Van Tuyle knows that what they share doesn’t always reflect the full story. That’s where a comprehensive data provider comes in.
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Every briefing we put together for our internal teams includes data from PitchBook to fill in the gaps of what we've learned from other outside sources.” |
In the due diligence process, catching small details may be the difference between a successful deal and a risky outcome. Ideally, irregularities would be identified earlier in the process, but certain details are sometimes not fully considered in the right context until the due diligence stage. This thorough investigation gives M&A professionals a better and fuller perspective of the information they’re reviewing.
Gaining insight into financing histories, series terms, cap tables, revenue figures, and more gives corporate development teams confidence as they pursue an M&A deal.
M&A due diligence checklist
There is no one way to perform a due diligence process. However, this checklist outlines common steps an acquiring company will take to audit a target company and evaluate an opportunity.
1. Strategic fit analysis
- Assess how a target company aligns with the acquiring company’s long-term strategy.
- Evaluate potential synergies like cost savings, market expansion, and technologies.
How PitchBook can help
- Access detailed profiles of potential target companies including business models, products, and strategic initiatives.
- Leverage market maps to understand landscapes and identify opportunities.
- Rank private companies by size and growth trajectory by observing the trend in employee count over time.
2. Financial analysis
- Examine the target’s financial statements, including balance sheets, income statements, and cash flow.
- Analyze key financial metrics and ratios to understand performance and health.
- Forecast future financial performance post-acquisition.
How PitchBook can help
- Utilize financial data on private and public companies, including historical financials, valuations, and funding history.
3. Legal due diligence
- Review legal structure and past or ongoing litigation.
- Ensure compliance with relevant laws such as antitrust and employment.
- Examine contracts, agreements, and obligations such as leases and loans.
How PitchBook can help
- Review legal and transaction histories, including past M&A activity, legal disputes, and regulatory issues.
- Access detailed information on prior agreements and transactions to understand legal commitment and precedents.
4. Operational due diligence
- Evaluate the efficiency and effectiveness of operations.
- Review supply chain, manufacturing processes, and technology infrastructure.
- Analyze human resources, cultural fit, and headcount.
How PitchBook can help
- Gain insights into company operations through key executives and employee growth.
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Using PitchBook to view trends of headcount over time is a huge tool for us. It’s a great indicator of a business’s financial health.”—Logan Atkins, Investment Banking VP, AGC Partners |
5. Market and competitive analysis
- Assess the target’s market position, size, growth potential, and trends.
- Analyze the competitive landscape and potential market risks.
How PitchBook can help
- Utilize market data to assess market size, growth, and trends.
- Compare the target’s market position and performance against a wide range of competitors.
6. Technology and intellectual property evaluation
- Review patents, trademarks, and other intellectual property.
- Assess the robustness and scalability of technology and IT systems.
How PitchBook can help
- Explore IP info, including patents and trademarks.
- Assess the company’s technological assets and investments.
7. Environmental, social, and governance assessment
- Evaluate the target’s ESG practices and risks.
- Understand potential impact on reputation and compliance.
How PitchBook can help
- When available, review ESG ratings and reports.
- View ESG commitments vs. activity.
8. Risk assessment
- Identify and evaluate potential operational, legal, and financial risks.
- Develop strategies for risk mitigation.
How PitchBook can help
- Analyze funding history, investor backing, and financial health.
- View ESG commitments vs. activity.
9. Integration planning
- Plan for post-merger integration, focusing on culture, systems, and processes.
- Establish clear goals and timelines for integration.
How PitchBook can help
- Use insights on company culture, structure, and operational practices
- Access data on previous M&A activity to understand integration precedents and strategy
10. Final evaluation and decision making
- Summarize findings and present to key decision makers.
- Make a decision based on due diligence findings.
How PitchBook can help
- Leverage PB data to compile a final report.
- Use analytical tools to synthesize data into actionable insights for decision making.
Due diligence on the PitchBook Platform
For many companies, due diligence is an ongoing process. While reactive due diligence is vital when a target is identified, proactively performing due diligence to stay on top of funding activity is key to successful corporate development. Van Tuyle shares how his team uses PitchBook to monitor activity.
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Every week, we review funding announcements related to our industry and add them to our own offline database to run our proprietary analysis. This is something that we do proactively so we can continuously monitor trends, making PitchBook the lifeblood of our knowledge of industry funding activity.” |
For Van Tuyle, PitchBook is also a powerful partner in helping to whittle down long lists of potential targets and identifying promising names to pursue.
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PitchBook is a vital resource to help us refine our target landscapes.” |
However your company performs due diligence, PitchBook can enhance workflow for corporate development teams, filling in all the gaps with the most comprehensive, easy-to-find data and instilling confidence throughout M&A dealmaking. With financial data on more than 3.5 million companies across the globe, the PitchBook platform is a reliable tool for diving deeper into any due diligence process.
Explore how corporate teams can leverage PitchBook to inform decisions
