Over the past decade, the time required for due diligence (DD) has increased significantly, despite advancements in digitization and automation. Whereas the average due diligence period was 18 weeks ten years ago, today it has risen to 29 weeks. This trend, described in the report "The Dynamics of Due Diligence" (2024) by the M&A Research Centre at Bayes Business School and SS&C Intralinks, points to an increase in the complexity of transactions and the associated need to allocate more time, money, and expertise for thorough investigation. The  functionality of DD research has clearly been elevated. This article explores the causes of this increased complexity and offers strategies to manage processes and optimize costs. The increase in the duration of DD processes can be attributed to several factors. Firstly, market dynamics have become more complex. Changing market conditions, including the globalization of markets and geopolitical relationships, require in-depth analyses to accurately assess risks and opportunities. The emergence of new markets and trade agreements has significantly altered international trade. Additionally, particularly in the European context, increasingly stringent regulations play a crucial role. These stricter regulations impose additional layers of control and documentation, requiring more time and expertise.

Although technological advancements can accelerate due diligence processes, the complexity of these new technologies often leads to more extensive evaluations and a greater need for expertise. This is especially true for investors using or developing advanced technologies. Furthermore, sustainability and governance requirements have become increasingly important, necessitating  additional due diligence to meet ESG (Environmental, Social, and Governance) criteria. These factors are highly relevant across all industries, particularly in sectors such as financial services, where regulation and compliance are becoming ever stricter.

To manage complexity and limit the sharply increased costs of external advisors and internal experts, an optimized due diligence approach is required. A project management strategy that utilizes PRINCE2 for the research phase and the MKDH model (Power, Strength, Support, Feasibility) for the decision-making phase can provide this. Integrating PRINCE2 and the MKDH model helps not only to manage complexity but also to optimize costs. In the initiation and planning phase, PRINCE2 establishes project goals and deliverables, identifies stakeholders, and determines their expectations and requirements. Subsequently, the due diligence activities are planned, including the necessary expertise, and a timeline is set. During the execution of the research, the planned due diligence activities are carried out, findings and risks are documented, and stakeholders are regularly updated on progress. Upon completion of each research phase, the MKDH model is used to evaluate the findings and make informed decisions about the continuation, adjustment, or termination of the deal.

Conclusion

The increasing complexity of due diligence processes demands an optimized approach to shorten timelines and control costs. By utilizing PRINCE2 for the research phase and the MKDH model for the decision-making phase, investors can better manage the challenges of due diligence processes. This integrated approach ensures a structured, disciplined execution of the DD process and well-considered decision-making, increasing the likelihood of successful deals and contributing to better financial and strategic outcomes.