While most mergers and acquisitions frameworks are concerned with the pre-deal valuation and the maximization of the transaction’s enterprise value, post-merger integration focuses on the realization of the predicted values once the transaction has been completed. The post-merger integration process is designed to harmonize two company’s departments and functions while benefitting from identified synergies without losing traction in the day-to-day business. Post-merger integration is synonymous for combining two different entities and fabricating a new and better combined enterprise.

The relevance of post-merger integration

History taught us, that a global crisis negatively impacts the mergers and acquisitions landscape globally both regarding total number of deals as well as median EBITDA multiples achieved by the sellers. The bankruptcy of Lehman Brothers, the largest bankruptcy filing in United States history, is also widely regarded as the culmination of the subprime mortgage crisis which ultimately resulted in the 2008 global financial crisis. Lehman’s bankruptcy filing led to a heavy decline in median EBITDA multiples achieved by sellers in the mergers and acquisition environment (Falkensteg research, Aug. 2020).

Despite experiencing a slight decline (4%) in the number of deals carried out in Q1 2021 (compared to Q4 2020) we are experiencing increasingly high multiples, 11.5x EBITDA in Q1 2021 (Clearwater International research, 2021). Market development behaving contrary to 2008 mainly stems from the high investment pressures and exceptionally low interest rates we are experiencing since the burst of the real estate bubble of 2007.

At this point it is necessary to mention, that the identification of synergies and their valuation happens prior to the signing and closing of an M&A deal (Figure 1), and that synergies play a key role in determining the transaction value. Combining the natural importance of synergies within the mergers and acquisitions environment with the increasing deal volumes after the global pandemic stresses the importance of synergy capitalization during the post-merger integration process.

Figure 1: Post-merger integration process, actions, and goals

Types of synergies

The success of mergers and acquisitions is mostly based on the value created during the post-merger integration process, which is driven by the four dimensions depicted in Figure 2. Synergies are widely regarded as the core of the post-merger integration process and as stated above, are one of the main value drivers in determining the enterprise value of the transaction. Hence, exploiting synergies post-closure becomes of utmost importance to the acquirer. However, the ability to capitalize on synergies presupposes the correct identification and assessment of existing of the latter. Consequentially, this chapter will focus on a variety of commonly identified synergiesand their implications.

Figure 2: Four dimensions of post-merger integration

Cost synergies

Cost synergies can be realized whenever the combined companies can be supported by an overall lower cost base than on an individual basis. These synergies can generally be divided into one time cost reductions and long-term cost benefits.

One time cost reductions are also known as quick-wins and can be realized shortly after the company has been handed over to the new owner. Such quick wins include the reduction of temporary employees or the reduction of the warehouse stock.

Ongoing cost savings may be more demanding to realize but will certainly have a lasting positive impact on the companies’ profitability. The combination of two companies often leads to the duplication of certain functions. Consequentially, the company can achieve cost savings through well thought layoffs of redundant functions. Companies may integrate horizontally or vertically to acquire superior technology; this is especially true in the context of E-Commerce companies. Such a transaction benefits the company saving on costs that would have been required for purchasing or developing the software itself, while also increasing market share and competitive positioning. Finally, the merged company can also benefit from supply chain effects through economies of scale, as they can leverage their newly combined purchasing power against their suppliers.

Even under the assumption, that top line revenues stay linear and do not realize any growth, the capitalization of previously mentioned cost synergies increases overall profitability. These synergies are relatively easily quantifiable and can be materialized with comparably low complexity.

Revenue synergies

In contrast to cost synergies, revenue synergies increase the top line of the company but do not necessarily increase the overall profitability. Consequentially, they are generally valued lower than cost synergies in pre-deal financial modelling, as they are more difficult to plan and to assign a value to. Hence, in comparison to cost synergies, revenue synergies play a subordinated role in determining the Enterprise Value compared to merger effects on the cost basis.

When merging companies, their respective product and service portfolio offerings as well as their distribution channels and networks become synergistic, allowing for increased sales. Furthermore, the newly merged company will benefit from an increase in traffic and their newly diversified portfolio will allow for cross- and/or up-selling.

Despite their subordination to cost synergies in terms of valuation, revenue synergies are more complex in their realization (i.e., it is more difficult to achieve cross-selling than to eliminate redundant corporate functions).

Financial synergies

Not all synergies create effects, that can immediately be quantified on the profit and loss statements. In fact, certain synergies create cash flow statement effects which ultimately have little impact on the profit and loss statement. However, synergies of this sort can have strategic benefits and need to be taken into consideration when identifying the list of potential synergies.

Commonly, larger enterprises, as they emerge from mergers and acquisitions, have better prerequisites, and hence can gain easier access to credit facilities and debt capital for that matter. This largely stems from the fact, that the combined companies likely have a larger asset base that can be utilized as collateral and that they create larger free cash flows for debt repayment than on a standalone basis. The profit and loss impacts are limited to the effective interest rates from the additional loans, while the additional cash enables capital expenditure and investments which can be a catalytic converter for additional top line growth. Furthermore, the merged company may be able to leverage additional tax breaks (i.e., tax shields: allowable deduction from taxable income, which leads to a reduction of the total tax burden), which does not have an immediate effect on EBITDA and transaction valuation for that matter but liberates additional post-tax cash flows for investments or dividends.

While financial synergies pose low levels of complexity as they are mainly realized on an accounting level, they are easily attributed with a value before signing and closing for the same reason.

Management synergies

Mergers and acquisitions transactions have many root causes, one of the most common reasons for an acquisition is based on the qualities of the management team of the acquired company. The combination of two management teams into one company may have positive and/or negative synergistic effects, which depends on the quality of cooperation between the teams. Despite the risk of negative synergies, the combination of management teams can reduce complexity in leadership while creating a high-performance management team at the same time.

Positive management synergies can essentially materialize in two radically different ways. In the first type of positive management synergy, both teams cooperate and therefore create a higher service level and better resource utilization through higher employee motivation as well as additional growth opportunities for the business. The second typus of positive management synergies includes the reduction of redundant functions and competences, which results in the creation of a leaner more efficient management team consisting of the top performers of both companies. This creates cost synergies as stated above while also increasing efficiency for the corporate decision making.

Except for the cost synergies achieved when reducing redundant management positions, management synergies are not only hard to be quantified but also complex to materialize during the post-merger integration process. They are often included in the additional premium (goodwill) a buyer is willing to pay above the actual valuation.

The identification of synergies is the first step and generally takes place long before the post-merger integration process is initiated. However, the core challenge of post-merger integration is being able to materialize these identified synergies and benefitting from them. The following chapter will provide “capitalization strategies” for a selection of synergies while also taking consequences and challenges into account.

Figure 3: Level of complexity and valuation implication of different identified synergies in PMI

Capitalizing on synergies – Living up to pre-deal valuations

After having identified the potential synergies of the forthcoming mergers and acquisitions transaction, the signing and closing of the latter, the synergies must be capitalized into hard cash, so that the acquired company or the merged group lives up to its pre-deal valuation expectations (which heavily affects the overall enterprise value of the transaction).

Ideally, the capitalization process of identified synergies already begins during the final phase of the due diligence, when the acquirer prepares a realization plan. This plan should define short-term and long-term synergies as well as relevant key performance indicators to measure the actual impact of the synergies.

Cost synergies

Realizing relevant cost synergies from the elimination of redundant functions requires a detailed analysis of existing employees in existing functions to be made. Redundant functions must be identified and the employees working in these functions need to be reviewed critically in the context of the future strategy of the corporation to choose the best fitting person based on overall set of skills and personal fit. However, it is necessary to mention, that bias of the acquirer may impact the evaluation process and lead to demotivating the employees after all. The final selection of team members should be a (if possible) well-balanced mix of highly trained professionals. The advice of a team of consultants can aid in preserving emotionless and unbiased evaluation of the potential team members.

Revenue synergies

Capitalizing from the most important revenue synergy, cross- and upselling requires a thorough analysis of the served customer spectrum as well as the industry and market dynamics. A deep understanding of the company’s product portfolio and their end customers as well as macro trends and trends within their sales channels which may impact their requirements. Furthermore, a detailed analysis of the newly combined product portfolio needs to be prepared, paying special attention to products which complement each other and suit the current customer needs and industry trends.

Summarizing, the acquirer is required to perform a detailed market intelligence to understand industry trends, as well as a product and product category analysis on SKU basis. This process may take up larger periods of time, which should be used to focus on the integration of core functionalities and the capitalization from cost synergies. Consequentially, it would be logical to consult experts and focus on the more operative part of the post-merger integration.

Other synergies

Both financial synergies and management synergies represent special cases regarding their “capitalization strategies.” As far as financial synergies are concerned, they do not require a specific capitalization strategy as they are generally realized on the accounting side of the company. Consequentially, the financial synergies should easily be capitalized based on a proper financial and tax due diligence. Management synergies on the other hand can only be planned to a certain extend. The elimination of redundancies can be anticipated, and a new organizational chart can be prepared ahead of the integration process specifying the new management. However, management performance is dependent on individuals rather than on strategic planning and well-designed processes, which makes management synergies the most complex to capitalize, as stated before.

Overall, the post-merger integration process is largely concerned with the monitoring and the harmonization of organizational processes and departments. Furthermore, it aims at capitalizing the previously identified synergies in the realms of costs, revenues management and financials. To capitalize from previously identified synergies, the integrator requires in depth knowledge about processes, products and industry trends and needs to monitor the situation closely. Seeking help from a professional advisory firm, which will accompany the post-merger integration process and will focus on materializing synergies is recommended.


Due Diligence Services Post-Merger Integration

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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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Markus Fost

Managing Partner
Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

The due diligence process is synonymous with an overall medical review for companies. It aims at conducting an in-depth analysis of all relevant processes, departments, and environmental considerations to provide investors with a sufficient information level to decide whether to buy or not to buy a target company and at what price. Therefore, the due diligence process is also meant for identifying any pitfalls and deal breakers before the investor acquires the target.

The commercial due diligence process – the heart of the M&A process

What the America Online (AOL) and Timer Warner (2001), Daimler-Benz and Chrysler (1998), Google and Motorola (2012), Microsoft and Nokia (2013) and Kmart and Sears (2005) transactions all have in common, except for being well known as the five biggest mergers and acquisitions failures of recent history (likely also of all time), is that they are notorious for their lack of a (proper) due diligence, even though due diligences are part of transactions since the renaissance in Italy. If Daimler-Benz would have focused more on their commercial due diligence before acquiring Chrysler, they would have likely found out, that their cultures, especially on the top-level management, were clashing and that their employee compensation packages would not be easily harmonized with the philosophy Chrysler was following.

The mergers and acquisitions environment provides plenty of examples of the likes of the Daimler-Benz and Chrysler transaction, which highlights the importance for a due diligence process, especially a commercial due diligence. The commercial due diligence process is the heart of the mergers and acquisitions process and is carried out shortly before the handing in of the final binding offer and the share purchase agreement negotiations, as can be seen in Figure 1.

Figure 1: Mergers and acquisitions process chart

The due diligence process has the purpose of evaluating and verifying all relevant facts and financial information and to expose any existing red flags that may otherwise remain concealed from the buyer. The commercial due diligence takes a particular look at the current commercial operations of the company and ultimately aims at confirming or adjusting the currently existing business plan of the sellers. The process and contents are mostly alike for all companies with some minor but relevant changes when looking at E-Commerce businesses.

Figure 2 depicts the typical components of a commercial due diligence report for an E-Commerce company, split into the two separate phases of the due diligence, the red flag report, and the confirmatory due diligence report. The following evaluation is mainly concerned with the red flag report that precedes the confirmatory due diligence and represents the most important phase of the overarching commercial due diligence report. The following chapter will provide a deeper inside into the identification of red flags in commercial due diligence reports as well as giving insights to what extend these red flags may have an impact on the success of the transaction.

Figure 2: Commercial E-Commerce Due Diligence process chart and phases

Red flags – Identifying pitfalls and deal breakers during the commercial due diligence process

Red flags are not exclusive to commercial due diligence reports but can happen in various situations in peoples everyday (business)life. According to the Merriam-Webster dictionary, a red flag is used to “identify or draw attention to a problem or issue to be dealt with.” Therefore, the red flag commercial due diligence report for E-Commerce businesses has the aim to analyze the most critical business operations such as the product assortment, the sourcing and supply chain, the customers, and the E-Commerce organization to identify and finally flag grave problems in the executive summary. Red flags can often be the reason for investors to back out from a deal. Hence, the due diligence process is split into two phases with the red flag report being completed before the confirmatory due diligence, so that investors only pay for phase two if they decide to continue with the transaction.

Red flags are generally not made readily available by the sellers or their advisors and require some deeper analysis. However, there are certain red flags which are encountered frequently within the different sections of the red flag report. These red flags will be evaluated in more detail below.

Module I: Product assortment and sourcing & supply chain analysis

The focus in analyzing the product assortment lies on the margin profile of the products (often clustered into a set of categories) as well as the overall revenue contribution of a certain number of SKUs. In this context, red flags may arise when product categories contribute margins which are not high enough to cover the fixed costs of the operation. Red flags may also arise, when the company needs too many products in their portfolio to achieve their top line. The general pareto efficiency also holds for E-Commerce business models, roughly 20% of the SKU base generates 80% (or more) of the total revenue of the company. A thorough return analysis is also part of the product assortment analysis and aims at gaining a deeper understanding of the product quality. If the return rates are significantly higher than the industry average, it must be assumed, that the product quality does not reach general industry standard, which consequentially raises a red flag.

Red flags in the product assortment analysis will almost certainly lead to a reduction of the enterprise value of the transaction and may even lead to the termination of the mergers and acquisitions process. Red flags in the product assortment are problematic as they effect the top line revenues as well as the gross margins. Identifying red flags at this stage of the due diligence process means, that the company is either purchasing their products at too high prices or their customers are unwilling to buy the goods at higher prices. Furthermore, requiring too many products to achieve a certain revenue level also raises doubt in the overall potential of the business model. Exorbitant return rates indicate low product quality or issues in the quality management process. Overall, problems in the product assortment are among the most difficult to be fixed as the whole business model would need to be scrutinized. Therefore, most buyers chose to terminate the negotiations based on product assortment red flags.

Supply chain red flags on the other hand are a different matter, as they are mainly based on the dependence on certain suppliers and on environmental factors such as long freight routes (from China to Europe) and their idiosyncrasies. When challenging the supply chain and logistics of a company, the material cost share is analyzed to understand the bargaining power of suppliers against the analyzed company. The same analysis is done for freight forwarders where appropriate. Furthermore, external impact factors driving freight costs are analyzed (e.g., COVID-19 or the blockage of the Suez Channel).

If a company is heavily dependent on one supplier and one forwarder and must submit to their claims because their bargaining power is overwhelming, a red flag must be raised. Purchase prices dictate profitability (it is easier to purchase cheaper than to sell higher) and the company therefore requires at least a balanced negotiation standpoint with their suppliers. Forwarders are generally attributed comparably less importance, as the most important ones (i.e., Schenker, DHL, DSV, etc.) are big enough to always have the better bargaining position. However, the company should try to find a mix between large freight forwarders and smaller local providers to differentiate their risks and to not receive a red flag during the due diligence process. Overall, sourcing and supply chain issues can be mitigated much easier than issues with the product assortment (i.e., the business model). Therefore, red flags in this aspect of the E-Commerce due diligence report are likely to take a toll on total enterprise value achieved but are comparably less likely to be a deal breaker.

Module II: Customer analysis

After having thoroughly analyzed the product offering and the associated procurement of the products and materials, the angle of the customer must be taken into consideration as well. The analysis of the customers is concerned with an in-depth analysis of number of orders, average order value, total revenues and quantities sold on the different sales channels. Based on company orderbooks the potential of cross-selling is computed, the average order values of single customers and returning customers are calculated and the overall share of returning customers against one-time customers is observed.

The analysis of customers’ purchasing behavior has the aim to shed light on the value of the brand of the analyzed company. It is important to establish an E-Commerce brand to tie customers down and convince them to continuously buy from the same shop and brand. This is mainly controlled through the analysis of the returning customers share. It would certainly raise a red flag if there were close to no returning customers. This would raise questions about customer satisfaction, product quality and overall market potential. A red flag would also be raised if customers would not be subject to cross-selling (purchasing goods from different product categories), as it would raise concerns about the customer perception regarding portfolio diversification. Customer perception of the brand as well as customer loyalty are lengthy and costly to change, and hence a respective red flag will take its toll on the Enterprise Value of the transaction.

In a second step, market trends are analyzed to grasp the overall direction of the industry and to see if the business has tailwind from trends. As the overall E-Commerce market is experiencing a general upward trend, a red flag would generally be raised by companies acting completely contrary to global macro trends. Despite red flags in this analysis generally being a deal breaker, they rarely happen as companies rarely survive by acting contrary to global market trends and demands.

Module III: Analysis of the E-Commerce organization

The organizational structure of E-Commerce companies is generally much leaner; therefore, it is even more important to evaluate the quality of the organization as well as evaluating bottlenecks and dependencies on single employees. The management team of a company is usually one of the strongest drivers for a strategic buyer or a financial sponsor wanting to purchase a company.

E-Commerce companies are usually comparably young companies, which are still managed by their founders and often include friends (and/or family members) in key positions of the company. While this may be working out well while the initial founding team is managing the company, the wind may quickly turn as soon as new owners manage the company. Questions about their retention at the company arise; will they be willing to stay once the founders have left the company? Furthermore, these employees may often be overpaid (experience has shown, that this is especially true for family members). While family and friends being part of the company may not be a red flag per se, having them in all key positions of the company certainly is one. A red flag of this kind may require additional amendments in the share purchase agreement such as a lock down period for key employees for a predefined period so that the investors have time to find adequate replacement personnel. If the share purchase agreement negotiations do not lead to a solution, this red flag can certainly represent an insurmountable issue.

A similar red flag needs to be raised when single employees of the company represent the linchpin of the whole organization. When all key functions are centered around a single individual, he or she may be more influential than the owners themselves, as they decide the fate of the company through their operative role. This red flag needs to be addresses by the investors as they need to decide if they see a solution to reduce the responsibility of this person (keeping in mind the individual may churn and leave the company in this case) or if they decide to replace the person by a trusted individual or group of individuals from their network altogether.

Figure 3: Red flags and their impact level on transaction success & value

Once the red flag report has been completed, the investors must decide if they are willing to continue with the deal and hence with the confirmatory due diligence report. If red flags have been raised, the investors will decide on in their gravity, make amendments to their preliminary purchase price, and speak with the sellers to manage their expectations. Overall, red flags can be thought of as a pyramid (as can be seen in Figure 3), with the bottom being red flags raised concerning the business model, the middle being red flags concerning the management and key employees of the company and the tip of the pyramid concerning the customer perception. Customer views are moldable, it requires time and skill to change people’s perception, but it can be done. Exchanging the management team is possible but it requires large amounts of time and capital. Further, it may lead to disruptions of the everyday business which could harm the company in the long term. A flawed business model makes all hopes for the transaction to have a positive return on investment obsolete and burns capital in the long run. If the product assortment analysis leads to the realization, that the offered portfolio has low margins, and the company is at the mercy of their suppliers, the deal should be broken off and investors should search for another target which can add value to their portfolio.


Due Diligence Services by FOSTEC & Company

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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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Markus Fost

Managing Partner
Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

Management Summary

  • Status Quo: The private equity transaction volume in the first half of the year is at a record level in Europe – no slowdown expected
  • Private equity houses are faced with the question of focus on costs or quality when selecting consultants
  • Cost-effective consultants may not be able to recognize strengths/weaknesses as well, as work is standardized – qualitative consultants are more expensive, but work for this with an individual approach and have more industry knowledge
  • Companies from digital economy mostly pursue a different business model and the market is constantly changing, therefore the following is important for high qualitative work
    • Deep understanding of the digital economy
    • Strategic vision regarding e-commerce and digitalization
    • Strong network in the digital economy
    • Entrepreneurial mindset
  • Private equity houses should pay attention to the quality of the consultants, otherwise strengths/weaknesses will not be recognized and false predictions are derived.


1. Status quo: Private equity activity in Europe at record level

The private equity market in Europe is currently experiencing a massive upswing in transaction volumes. According to the research institute Refinitiv, the European private equity market achieved a transaction volume of USD 155.8 billion in the first half of 2021. This is the highest volume ever .  Compared to the first half of 2020, the volume thus increased by almost $100 billion (Cf. $59.1 billion transaction volume in the first half of 2020). Similarly, the number of transactions increased by over 50% from 991 to 1,585 transactions.

A slowdown in activity is not expected as private equity houses continue to raise money in times of low interest rates and low bond yields. The money raised further increases the pressure on investors to close deals, to use the available money and generate returns.

Deals are also eagerly being made in the digital economy in Europe. The current financing and investments include the following, among others:

  • Lending platform Younited receives $170 million from Goldman Sachs und Bridgepoint
  • AI company Tractable receives $60 million from Insight Partners and Georgian
  • AI company AskBrian closes funding led by FOSTEC Ventures






2. Commercial Due Diligence – A fine line between efficiency and quality

There is a fine line between efficiency and quality in due diligence for targets from the digital economy and setting the wrong priorities can be expensive for private equity investors.  At the beginning of an M&A process, the information asymmetries between buyer and seller are very large and a good commercial due diligence can reduce these asymmetries or even give the buyer a knowledge advantage in certain parts.

The advantages of standardising the commercial due diligence are obvious at first glance – results can be achieved cost-effectively and quickly. The contents and analyses are predefined and can be applied to all companies. In addition, the analyses can be carried out by junior consultants without specific industry knowledge. At second glance, the dilemma of the situation becomes apparent, since on the one hand, the business model of companies from the digital economy is usually very different from classic industrial companies and the industry itself is subject to strong and constant change. Standardized procedures usually cannot do justice to these specifics and the danger arises that priorities are set incorrectly and important findings cannot be uncovered.

In terms of industry specifics, the topics of operations and sales  are particularly worthy of mention.   On the one hand, the focus of value chain activities at traditional industrial companies is usually different than at companies from the e-commerce and digitalization sectors. Normally, the strong focus of traditional industrial companies is on operations, i.e. the production of products and the associated logistics. Since production and logistics account for a large share of costs at traditional industrial companies, small improvements already have a major effect.

In the case of companies from the e-commerce and digitalization sector, many areas of operations are often outsourced and taken over by service providers. The reasons for this are primarily the dynamics of the industry and the better scalability of the business model. By using specialized service providers, it is possible to fall back on existing infrastructures and the operations part of the company does not have to be set up itself. Furthermore, companies in the e-commerce and digitization sector often sell digital products rather than physical ones, for which traditional operations are not necessary.

Ultimately, this does not mean that the topic of operations is not important for companies in the field of e-commerce and digitization. On the contrary, the e-commerce business usually requires even better operations than classic industrial companies due to high customer demands on service/deliverability. However, the focus of the companies is not on their own operations, but rather on the cooperation with service providers and the IT systems used. This means that the skills of the employees as well as the IT systems used are much more important.

In addition to the example of operations, sales activities are usually also structured differently than in classic industrial companies. Through online sales, classic sales channels such as retail stores are replaced by online marketplaces or own web shops. Again, this does not mean that distribution is losing importance for companies in the e-commerce and digitalization sector, but that the focus is shifting. On the one hand, the area of D2C is gaining more and more importance and on the other hand, the KPIs that are relevant for sales are changing. The analysis of the achieved traffic on the marketplaces and own webshops as well as topics like Conversion rate, Advertising Cost of Sales or traffic sources gain massively in importance. Through increased direct and measurable customer interaction, marketing and sales activities can also be analyzed and evaluated more precisely.



3. Recommendation for action – No compromise on the quality of commercial due diligence

A standardized and thus efficient execution of a commercial due diligence bears the high risk that important strengths and weaknesses of a company are not identified. The previous section has shown that for companies from the e-commerce and digitalisation sector, the focus should often be on different topics than for classic industrial companies. Due to the high dynamics and constant changes in market structures in this industry, standardized approaches often cannot uncover and evaluate all the subtleties of the companies.

On the one hand, this means that standardized procedures are out of place in commercial due diligence. Every company differs in terms of the structure and focus of its business model and value chain. Standardized procedures do not do justice to this individuality and run the risk that important aspects of a company are analyzed insufficiently or not at all.


Figure 1: Success factors of commercial due diligence in the digital economy


On the other hand, the following requirements for a commercial due diligence consultant can also be derived from this for targets from the digital economy  (see also Figure 1)


  • Deep understanding of the digital economy:

In order to be able to evaluate companies in detail and identify strengths / weaknesses, a deep understanding of the digital economy is necessary.  On the one hand, typical problems of the companies can be better identified and focus topics can be evaluated and examined in more detail. On the other hand, strengths and optimization potentials of the companies can also be better assessed and thus the upside potential after the purchase can be optimized. As a result, the information asymmetries that exist at the beginning can be reduced overall or even shifted to the investor’s advantage in some areas.


  • Strategic vision regarding e-commerce and digitalization:

In addition to a more detailed examination of the company, future market developments can also be better assessed. Promising market areas can be identified more easily or negative developments in the company’s own market area can be foreseen. As a result, the company’s entire external ecosystem can be better evaluated. Recommendations for future strategy development or necessary transformation due to market changes can be identified at an early stage in order to initiate countermeasures in time.


  • Strong networking in the digital economy

A strong network of consultants in the digital economy has the significant advantage that external experts can be brought in for commercial due diligence if required. This allows the expertise in the team to be further increased and expert interviews can be used to further validate or discard assessments and findings.


  • Entrepreneurial mindset

In order to add further experience to the purely analytical part of a commercial due diligence, an entrepreneurial background of the advisors is useful. Previous activities as an independent entrepreneur or activities in a company in the digital economy are enormously helpful in order to be able to better assess companies and their organisation and processes. In addition, these consultants know the everyday life in companies and can better assess which ambitions and changes are realistic. These empirical values therefore help overall to make better assessments regarding the development and future forecast of companies and to meet the potential target at eye level.


4. Summary and outlook

Activity in the private equity market is currently at an all-time high in Europe and a decline is not expected due to cheap money and the lack of alternatives. This increases the need of private equity houses for due diligence services and confronts them with the question of what type of advisors to choose.

Should aconsultancy be chosen, which is characterised by standardisation and low costs, or a consultancy which focuses on a highly individual and high-quality approach at higher costs?

Due to standardisation and a lack of industry knowledge, low-cost consultancies are usually unable to achieve the same quality and granularity in their analyses and assessments as consultancies with a high level of industry knowledge. This creates the risk that important strengths and weaknesses of the companies are not recognized and that incorrect forecasts are derived. When selecting consultants, the most important things to look for are a deep understanding of the digital economy, strategic foresight regarding e-commerce and digitization, strong networking among consultants in the digital economy, and an entrepreneurial mindset. The best way to recognize these skills is through the profiles of the consultants in the offer, the topicality of the content of the companies on their own homepage or Social Media platforms such as LinkedIn or the presence of the consultants in relevant media and their publications.

We look forward to your opinion, a joint exchange and exciting discussions – feel free to contact us via email, LinkedIn or even by phone.

For further recommendations and dedicated strategies around the topicsE-commerce, due diligence and Transformation we are always happy to assist you.

Your FOSTEC & Company Team



Contact one of our experts

Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

Learn more

Markus Fost

Managing Partner
Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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