ABSTRACT
This chapter analyzes the relevance of real options thinking for the design and management of the due diligence process. It provides a detailed discussion of the relevance of all of the different aspects for the due diligence process, as well as, general guidelines for realizing real option value in the mergers and acquisitions (M&A) process from the buyer's, as well as, the seller's perspective. The due diligence phase represents the part of the M&A process where the buyer has the opportunity to evaluate all of the potential upside and downside risks present in the target firm. The chapter explains how real options associated with the transaction can be identified and managed by the potential buyer in an effort to manage growth, as well as, to curtail downside risks. It discusses how transaction risks can be mapped into the acquisition agreement in the form of protective contract clauses.
