Traditionally there have been two types of investigation carried out by the purchaser into any acquisition. First, buyers instruct lawyers to carry out a legal check - into contracts, leases, litigation and so forth. Second, they engage accountants to analyse the accounts, tax position and financial aspects of a target business. Virtually no serious investment is made without such research. But increasingly, certain investors and buyers are undertaking a third type of due diligence - commercial due diligence.

Generally I am a little sceptical of the value of consultancy firms and their armies of Harvard MBAs. It seems to me that firms who rely heavily on outside advisers to run their business must have weak management. Occasionally an argument can be constructed that it makes sense where real specialists in areas such as information technology can be drafted in on a contract basis to implement new systems - and then leave. Perhaps in periods of savage restructuring consultants can add value during the transition. But mostly I suspect expensive, posh consultancy firms are bought in to big, badly run companies where the executives are too scared, too stupid or too lazy to do the work themselves. Perhaps the consults are there to fix the problems, yet the real faults lies with bad people running the show. And so the answer must lie in replacing those full-time executives, rather than paying up to 300,000 a year per consultant! But when making acquisitions it becomes essential to get outside advice. You need the specialist skills and independence, and someone giving an impartial opinion as to the risks of the grand deal you want to do. It may be you have become emotionally committed to making the move and you need cold logic to stop you wasting money.

This, for me , is where consultants can be really useful. Various specialist firms have sprung up in the past few years to conduct this type of commercial due diligence for a fee. They are a segment of the consultancy profession, alongside strategy consultants and the like. The better firms offer an independent, intelligent perspective on such crucial areas as customers and competitors. This does not mean just desk studies - looking at existing, published market reports into the overall industry. It means interpreting raw data collected specifically for the project in question and making well-informed assumptions abut the trend of sales and market shares going forward. This is likely to mean meeting and interviewing key customers and rivals to find out at first hand if the business has sound relationships in its marketplace and respect with the trade.
  Vendors of business frequently attempt to hide the fact that the competitors have superior products or technology, or customers are dissatisfied. On one occasion I pulled out of a deal following such an analysis, as it showed the largest customer of the target company was about to cancel its contract. Such advice could potentially save you millions of pounds.

Such commercial due diligence tends to focus on the future rather than the past - market trends, changing buying habits or tough new competitors perhaps. Investigating accountants, on the other hand, spend much of their time on historic numbers and their validity. Such number crunching is important but less significant than getting a really good idea of a firm's up-to-date reputation and performance in the field. Advanced commercial due diligence can even include focus groups and mass surveys, although these are difficult to carry out confidentially.

The best consultants carry out their work with limited assistance from the vendors, or possibly even without their knowledge in the case of a possibly unsolicited take-over. I have always favoured using smaller consulting firms to carry out such assignments. They charge less and can be more responsive than the giant powerhouse consultants or the big accountancy firms. More-over, the best such organisations specialise in pre-acquisition investigation and therefore are really expert.

My favourite outfits to do commercial due diligence are The COBA Group (020 7399 4700) and PBD Consulting (020 7589 0803), both based in Central London. They are relatively low profile organisations compared with giants such as Bain, Boston Consulting and McKinsey & Co, but they both work for big companies and substantial private equity houses. Of course, the success of any acquisition is down to the judgement and abilities of the principals, and no amount of wise advice makes it actually happen. However, really thorough consultants' reports can highlight defects and give useful ammunition if you want to renegotiate. The costs are generally less than those charged by lawyers and accountants but their work is equally vital. To me, engaging such a firm makes eminent sense and represents a sound investment.