Skill: 1kalin/afrexai-ma-diligence (version 1.0.0)

# M&A Due Diligence — AI-Augmented Assessment Run a structured due diligence analysis on any acquisition target. Covers financial, operational, technology, legal, cultural, and AI/automation readiness dimensions. ## When to Use - Evaluating an acquisition target - Preparing sell-side due diligence materials - Assessing a merger partner - Running post-LOI deep dive - Investor or board due diligence request ## How to Use Tell your agent: "Run M&A due diligence on [Company Name]" or "Prepare due diligence for acquiring [target]." The agent will walk through each dimension below and produce a scored assessment with red flags, deal-breakers, and a go/no-go recommendation. ## Due Diligence Framework ### 1. Financial Health (Weight: 30%) **Revenue Quality Score (0-100)** | Factor | Weight | Check | |--------|--------|-------| | Revenue concentration | 25% | Top client <15% of revenue = green, >30% = red | | Recurring vs one-time | 25% | >70% recurring = green, <40% = red | | Revenue growth trend | 20% | 3-year CAGR >15% = green, declining = red | | Gross margin | 15% | >60% SaaS / >40% services = green | | Cash conversion | 15% | Operating cash flow / EBITDA >80% = green | **Financial Red Flags** - Revenue recognized before delivery - Related-party transactions >5% of revenue - Working capital deteriorating quarter-over-quarter - Customer acquisition cost (CAC) payback >18 months - Deferred revenue declining while bookings "grow" - Off-balance-sheet liabilities or operating leases hiding debt **Valuation Sanity Check** | Metric | Healthy Range | Danger Zone | |--------|---------------|-------------| | EV/Revenue | 3-8x (SaaS), 1-3x (services) | >15x without hypergrowth | | EV/EBITDA | 10-20x | >30x | | Price/FCF | 15-25x | >40x or negative FCF | | Net debt/EBITDA | <2x | >4x | ### 2. Technology & Product (Weight: 20%) **Tech Stack Assessment** - Architecture: Monolith vs microservices vs serverless - Technical debt score: deployment frequency, change failure rate, MTTR - Security posture: SOC 2, ISO 27001, penetration test recency - Scalability: Can 10x current load without rewrite? - AI/Agent readiness: API-first? Automation potential? - IP ownership: Clean IP assignments from all contributors? **Product-Market Fit Signals** - Net Revenue Retention >110% = strong PMF - Logo churn <5% annually = healthy - NPS >40 = good, >60 = excellent - Organic growth % of total = true demand signal ### 3. Legal & Compliance (Weight: 15%) **Legal Checklist** - [ ] Pending or threatened litigation - [ ] IP infringement claims or risk - [ ] Data privacy compliance (GDPR, CCPA, HIPAA) - [ ] Employment law compliance (contractor misclassification) - [ ] Environmental liabilities - [ ] Tax compliance and audit history - [ ] Change-of-control clauses in key contracts - [ ] Non-compete/non-solicit enforceability **Regulatory Risk Score** - Industry-specific regulations mapped - Compliance cost as % of revenue - Pending regulatory changes that could impact operations ### 4. Operational Excellence (Weight: 15%) **Operations Scorecard** | Area | Green | Yellow | Red | |------|-------|--------|-----| | Employee turnover | <15% | 15-25% | >25% | | Key person dependency | Distributed | Some concentration | Single point of failure | | Process documentation | Comprehensive | Partial | Tribal knowledge | | Vendor concentration | Diversified | 2-3 critical | Single vendor lock-in | | Customer support quality | <2hr response, >90% CSAT | 4-8hr, >80% CSAT | >24hr, <70% CSAT | ### 5. Cultural & People (Weight: 10%) **Integration Risk Assessment** - Leadership alignment on vision and values - Compensation structure compatibility - Remote/hybrid/office culture match - Decision-making style (flat vs hierarchical) - Glassdoor/Blind sentiment analysis - Key employee retention risk (flight risk score) **Retention Package Benchmarks** | Role Level | Retention Period | Typical Package | |------------|-----------------|-----------------| | C-Suite | 12-24 months | 1-2x base + equity acceleration | | VP/Director | 12-18 months | 0.5-1x base + equity | | Key IC | 6-12 months | Spot bonus + equity refresh | ### 6. AI & Automation Readiness (Weight: 10%) **Agent-Era Value Score** - Data quality and accessibility (structured, labeled, API-accessible?) - Process automation potential (which workflows can agents run?) - AI talent on team (ML engineers, data scientists, prompt engineers) - Existing AI/ML models or IP - Competitive moat from proprietary data or models **Post-Acquisition AI Uplift Estimate** | Department | Automation Potential | Annual Savings | |------------|---------------------|----------------| | Customer Support | 40-60% ticket deflection | $120K-$400K | | Sales Operations | 30-50% pipeline automation | $80K-$200K | | Finance/Accounting | 50-70% reconciliation | $60K-$150K | | HR/Recruiting | 40-60% screening | $50K-$120K | | Legal/Compliance | 30-40% contract review | $40K-$100K | ## Scoring & Output ### Overall Deal Score (0-100) - 80-100: Strong buy — proceed to LOI/definitive agreement - 60-79: Conditional — address specific risks before proceeding - 40-59: Caution — significant risk areas need resolution - 0-39: Walk away — deal-breakers present ### Deal-Breaker Triggers (auto-fail regardless of score) - Undisclosed material litigation - Revenue fraud or restatement risk - Key customer representing >40% revenue with no contract - Unresolvable IP ownership dispute - Regulatory action that could shut down operations - Key founder/employee departure with no retention agreement ### Output Template ``` # M&A Due Diligence Report: [Target Company] Date: [YYYY-MM-DD] Prepared for: [Acquirer] ## Executive Summary - Overall Score: [X/100] - Recommendation: [BUY / CONDITIONAL / WALK] - Key Strengths: [3 bullets] - Critical Risks: [3 bullets] - Estimated Integration Cost: $[X] - Post-Acquisition AI Uplift: $[X]/year ## Detailed Scores | Dimension | Score | Weight | Weighted | |-----------|-------|--------|----------| | Financial Health | /100 | 30% | | | Technology & Product | /100 | 20% | | | Legal & Compliance | /100 | 15% | | | Operational Excellence | /100 | 15% | | | Cultural & People | /100 | 10% | | | AI & Automation Readiness | /100 | 10% | | | **Overall** | | | **/100** | ## Red Flags [Numbered list with severity and mitigation] ## Integration Roadmap - Day 1-30: [Quick wins] - Day 31-90: [System integration] - Day 91-180: [Full operational merge] - Day 181-365: [Optimization and AI deployment] ## Recommended Next Steps [3-5 specific actions] ``` ## 2026 Benchmarks **M&A Market Context** - Average SaaS acquisition multiple: 6-10x ARR (down from 15-20x in 2021) - Due diligence period: 60-90 days (accelerating with AI tools) - Integration failure rate: 70-90% of M&As fail to deliver expected value - #1 reason for failure: Cultural mismatch and poor integration planning - AI-ready targets command 15-25% premium over comparable non-AI companies **What's Changed in 2026** - AI/agent readiness is now a core valuation driver - Data assets valued separately (proprietary training data = moat) - Per-seat SaaS revenue declining — usage-based models preferred - Remote-first companies easier to integrate (no office consolidation) - Regulatory complexity increasing (EU AI Act, state privacy laws) --- ## Get the Full Industry Pack This skill gives you the framework. 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