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Due Diligence

Many factors are included in the due diligence process when companies are considering mergers, acquisitions or simply forming business relationships with other groups.

Understandably the emphasis is on the financial details but one other set of information can have a profound effect on the eventual success, or not, of the project and so, if known beforehand, on the initial decision making process.

If you accept, and I hope you do, that the proportion of a company’s customers and employees who are loyal to the company is a crucial factor in determining the success and growth of a company, then it would be foolhardy indeed not to measure how loyal the customers and employees of the to be acquired company are before making a final decision.

Consider the case of a company A which is intending to purchase either company B, or company C. Both companies are equally profitable and the financial discovery has not revealed anything troubling. 

Let’s dig deeper to throw some light on the strategies used to create the profits.

Surveys reveal that company B has a very low Net Promoter Score meaning that it has a high proportion of dissatisfied (Detractor) customers; loyalty studies of the employees show much the same dissatisfaction. Further analysis shows that company B engages in excessive charges, has restrictive contracts and spends little or nothing on customer relationship and retention programs.  Because secure future growth depends on the proportion of loyal customers, the future of company B’s profitability is in doubt.

Company C has a high NPS with relatively few Detractors or disloyal employees. It has well funded customer relations programs supported by a loyal workforce. It shuns programs and tactics that do not add value for the customers.

Which company would you not consider buying?