Companies spend billions of dollars on acquisitions. They spend millions of dollars with lawyers to make sure that the companies they buy are legally formed and protected from certain legal and business risks. They spend millions of dollars with accountants to make sure that the financial disclosures are a good representation of the target’s financial position and operating results. They spend millions of dollars with engineers to make sure that the products do what they are supposed to do. These millions are well worth it.
And most companies spend and do almost nothing with respect to the single biggest and most valuable asset in most transactions—the customer base.
Before you spend your shareholders’ money on acquiring another business, shouldn’t you know how valuable that single largest asset is?
Wouldn’t you like to know…
· How loyal is the customer base that you are buying? Are they likely to continue to do business with you after the deal?
· What are they loyal to…management? The brand? The product or service? The account team?
· What challenges are customers having with the target?
· What opportunities exist within the customer base to jump start post-deal growth?
· How much of the revenue stream is in high risk of leaving?
· How do customers view the target relative to its competitors?
Due diligence on the customer base—real due diligence, not the standard phone call to 5 pre-wired customers—can dramatically increase and accelerate value accretion. After all, what’s more important than the customers that account for every dollar of revenue that you are buying?