Acquiring a distribution or logistics business is one of the best business decisions one can make today. Right now, the global distribution and logistics industry is expected to reach $301.9 billion by 2030, at a solid 5% rate.
But acquiring a good business isn’t as easy as it sounds. That’s where due diligence comes in—a comprehensive evaluation of the business’s operations and working conditions, conducted before agreeing.
But how do you go about doing it? Let’s break it down.
1.Legal and Regulatory Due Diligence
Due diligence is a critical part of any acquisition, especially if you’re planning to acquire any distribution businesses for sale. This aims to thoroughly examine all of the company’s legal and compliance aspects.
Key Tips
- Ensure that the distribution and logistics company is free from any ongoing or potential legal risks.
- Check the articles of incorporation, bylaws, existing certifications, and any changes in the company’s legal structure over time.
- You also have to check the company’s existing agreements with other businesses and collaborators, such as how it’s conducting transactions with companies that have partnered with them.
2.Financial Due Diligence
Financial due diligence is again one of the most important aspects of checking if a distribution company is worth acquiring. A strong distribution company will consistently show profits and have an upward curve in terms of finances.
Key Tips
- Examine the trading sheets, balance sheets, profit and loss statements, and all other financial documents to check whether or not the company is performing well.
- Check the cash flow statement and see whether the company has been able to repay its outstanding loans, if any.
- Review annual reports to monitor how the company plans to allocate financial resources in the future.
3.Operational Due Diligence
How a distribution and logistics company conducts its operations, including processes and supply chain, is an important part of due diligence.
Key Tips
- Look for a strong operational infrastructure in terms of supply chain, dependencies, and risks.
- See how well the company has incorporated artificial intelligence (AI) into its operational processes, such as automating logistics systems.
- Assess their capital expenditure projects, along with a detailed list of all the existing and future equipment and assets.
- Verify every current insurance policy and related policy papers.
4.Environmental Due Diligence
Every company needs to be responsible and choose sustainable working conditions to make sure it’s successful in the coming years.
Key Tips
- Scrutinise the environmental reports and check which Sustainable Development Goals the company aims to fulfil. The raw materials and logistics systems should be environmentally safe and ethical.
- Watch the amount of fuel being consumed in each shipping vehicle, the raw materials being used for packaging, and the working conditions in shipping and distribution centres.
- Ensure their environmental regulations are up to date.
5.Technical Due Diligence
Even though technical due diligence can be a part of operational due diligence, understanding the technology being used in logistics and inventory management can be done separately.
Key Tips
- Evaluate the company’s IT and systems infrastructure, along with the technological stack. For example, they might rely on third-party software to automate shipping systems or simplify inventory management.
- Know whether the company can scale up its technology and cater to a wider number of shipments, vehicles, or supply chain systems under load.
6.Commercial Due Diligence
Commercial due diligence encompasses various components, each of which helps the acquiring company understand how it is performing in the industry.
Key Tips
- Study the distribution company’s market position, sales, competitive landscape, customer relationships, sales and growth strategy, and stakeholder interactions.
- Check the company’s existing competitors and how strong your company is in terms of market share. This gives insights into potential revenue risks and how to improve customer satisfaction and loyalty.
7.Human Resources Due Diligence
No company can truly be successful if they don’t have a strong human resources department.
Key Tips
- Before acquiring any company, it’s a must to check employee records, attrition rates, existing and potential contracts, and job descriptions.
- The working environment of employees is also important, especially if people are handling sensitive or dangerous distribution equipment. These employees need special benefits and insurance.
- Ideally, there should also be an HRIS or Human Resources Information System that will provide useful insights for the acquirer. Inquire about it.
Note: If the workforce is not adequate, you have to figure out how to strengthen the existing employee numbers.
Conclusion
Using the right key performance indicators (KPI), you can conduct thorough due diligence and understand whether or not to acquire the distribution and logistics company of your choice. Alternatively, you can contact a third-party company that will conduct all the required due diligence processes for you!
