The Problem: Valuations Have Doubled, but Many Still Rely on Old Diligence Habits
In the 1990s, the majority of M&A transactions were valued at 5 to 6 times EBITDA. Now, that multiple has doubled in high-growth industries. Recent industry statistics put median EBITDA multiples at 23.69x for systems software and 25.88x for semiconductors¹. This is not unusual. In private equity, strategic corporate buyers, and technology consolidators, the cost of entry has increased exponentially.
But whereas valuation assumptions have changed, habits of diligence have not. Financial modeling, legal due diligence, and top-line cultural alignment remain top priorities for buyers. But more detailed operational and technical due diligence, especially the kind that stresses out whether the acquirer can really integrate, expand, or even maintain the target, is hurried along, done internally, or even skipped altogether.
And in the current pricing environment, that no longer is a minor mistake. It’s a structural weakness.
The Impact: When Diligence Lags, the Entire Deal Can Collapse
At a 25x EBITDA multiple, you’re not buying the company’s current earnings. You’re buying forward-looking performance: roadmap velocity, infrastructure scalability, integration synergy, and post-close execution discipline. Any cracks in these areas, if unexamined, can compromise not only the internal mechanics of the business, but the deal’s entire return profile.
Consider three very real cautionary tales:
- Meta & Giphy (2020): What started as a $400M wager to enhance Instagram’s visual media plane became a compliance debacle. The acquisition was blocked by UK regulators due to antitrust concerns and inadequate data governance planning. Outcome: mandated divestiture.³
- IBM & SoftLayer (2013): IBM bought SoftLayer for $2B to fuel its cloud drive, only to find integration issues watered down its competitive advantage. Rather than augmenting IBM’s enterprise cloud platform, SoftLayer’s inappropriately aligned architecture became a hindrance to platform coherence.⁴
These were not bad companies or flawed strategies. In every instance, failure was a result of underestimated operational complexity and insufficient diligence. The financial impact was direct and quantifiable, ranging from delayed ROI to complete strategic reversal.
The Solution: Build Diligence to Match Modern Deal Math
In the high-multiple world of today, the answer isn’t simply “more diligence”, it’s more disciplined deal execution at each step. Financial, legal, cultural, tech ops, cybersecurity, and operational checks must now be linked to a unifying thesis: what are we actually underwriting, and how do we turn that value into reality post-close?
This isn’t about ticking boxes, it’s about stress-testing the deal from several directions. Are synergies feasible under current systems? Will customer retention endure transition? Is leadership continuity assured? And as importantly, is the strategic rationale robust enough to support the premium?
It’s also about ensuring the right people are asking the right questions. That might involve bringing in niche experts, particularly in fields such as tech integration, cybersecurity, or industry-specific compliance. But even that is not guaranteed. Deals can still fall apart. The point is whether the risks are appreciated, factored-in, and proactively planned for.
Because in a market where valuations reflect tomorrow’s earnings, buyers must shift from reacting to issues post-close to anticipating them pre-close.
How Diligence Pays Off in a Getting Deal Right
The return of a strong diligence process is more than just downside avoidance. More often than not, it releases upside.
With deep and knowledgeable diligence, integration occurs more quickly. Critical talent is preserved. Product roadmaps are de-risked. Earnout targets are within reach. Platform extensions are feasible. And the acquirer shifts from stabilizing the business to scaling it, earlier than anticipated.
In the current deal landscape, with premium pricing standard and margin for error is thin as a razor, diligence is no longer a back-office exercise. It’s a front-end value creation driver.
For instance, In a $500 million deal, even a modest 10% slip in integration execution can destroy up to $50 million in expected synergies, or delay value realization by two years. That’s not a minor miss. That’s a failure to deliver on the deal thesis.
Conversely, buyers who treat diligence as strategy, not formality, consistently outperform on both IRR and operational execution.
Conclusion: In a 25x Market, There Is No Room for Assumptions
In a world of high-multiple deals, you’re no longer buying what’s on the pitch deck. You’re underwriting what happens after day one. And if what happens after day one isn’t supported by infrastructure, integration capacity, or execution alignment, then no spreadsheet will save the deal.
The old playbook of diligence no longer applies. Success in today’s M&A world belongs to those who dig deeper, ask tougher, and prepare broader, for what they’re actually acquiring.
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