Due Diligence for Engineering & Manufacturing Businesses – an Overview

A due diligence exercise or audit is usually carried out as part of the acquisition process to ensure that the business appears to be what the owner(s) say or believe it to be and to make sure that the price offered truly reflects the benefits and potential risks being taken on-board by the Purchaser.

There are several forms of due diligence available to suit the type and size of business, none less so than for Engineering and Manufacturing businesses.

There are many good audit companies that do a great job at investigating the financial side of companies, and for good reasons this needs to be done. It’s important to ensure that the financial performance, projections and commercial commitments of the company about to be purchased are “as stated”, before the acquisition takes place.

What about product reliability and manufacturability? Future financial performance assumes that you will be able to continue selling the products from the new acquisition in the same manner as it had been before the purchase took place. Auditors often use a few obvious measures of past performance to infer future product reliability and manufacturability. They’ll look at items such as return rates, warranty costs, cost to manufacture and rework.

What is Engineering & Manufacturing Due Diligence?

However, the above measures alone may not be enough, hence the need for need for more specialist due diligence. Manufacturing stoppages and recalls can and do happen without warning, and to well established products throughout their lifecycle, sometimes years after they are first released on the market. It is, therefore, important to know that the manufacturing processes will remain reliable for the future, providing product lines with consistent quality, for the life cycle of the product.

Specialist Due Diligence by experienced Design Engineers – the benefits

For engineering and manufacturing businesses, due diligence should include a detailed audit of the target company’s Design, Engineering/Manufacturing and Quality processes, undertaken by qualified and experienced design engineers. The use of audit engineers can help check how effective these processes are. This will help ensure that the Purchaser can understand if future products are likely to fail in use and cause a recall, and whether manufacturing stoppages are pending. As a side benefit, having understood how products are going to be manufactured, advice can be provided on opportunities to stream-line manufacturing and reduce future costs.

Detailed Due Diligence auditing in this way can provide far more information and will provide greater reassurance to the Purchaser before the commitment to purchase. Alternatively, a successful initial audit for the Vendor will help substantiate the asking price in the selling process.

Need help with Engineering or Manufacturing Due Diligence?

Whether you are buying or selling an engineering or manufacturing business, Stirling partners with an Engineering & Manufacturing Due Diligence Specialist. For further information, simply complete the form below: