In terms of mergers and acquisitions, due diligence refers to the multilevel assessment that potential buyers make before acquiring a company. The goal of due diligence is for the buyer to gain a full understanding of the risk associated with acquiring the seller’s company so they can make an informed decision about whether or not to buy it.
If you are looking to sell your company, it’s important to be properly prepared for a buyer’s due diligence process. This process is likely going to be much more difficult and involved than you may have anticipated. The best way to expedite the process for both you and the buyer and minimize the risk of deal failure is through detailed preparation in advance of a buyer’s due diligence. Here are just a few ways that you can prepare your company for the due diligence process.
- Anticipate The Buyer’s Concerns—Start the due diligence preparation by anticipating the concerns of a potential buyer and addressing them head-on. Some buyers will provide you with a due diligence guideline, but it’s a good idea to prepare your own in advance of their visit. Most buyers will want to know about the financial, technological, legal and managerial aspects of the company. Organize and compile all of the relevant documents ahead of time—for every claim you make about your company, there should be a corresponding piece of evidence.
- Share Sensitive Information at Your Discretion—The process of due diligence is a delicate balance between giving your buyer a comprehensive look into your company and protecting your privacy. It’s important to be transparent during these procedures without risking the security of the company. The buyer should only request information which is pertinent to the acquisition of the company, and the invasiveness of their questioning should correspond to their seriousness in acquiring the company. It’s not a good idea to reveal sensitive information to a buyer that shortly thereafter rescinds their offer. Share sensitive information at your discretion and only once the buyer has expressed a degree of commitment in the acquisition of your company.
- Deal with All Unresolved Litigation—Unresolved litigation and lawsuits, even those which have only been threatened but not acted upon, can pose serious risks to the acquisition process. Unresolved litigation is much more expensive and complicated once the due diligence process has started, which can make your company much less attractive to a buyer. Resolve any outstanding legal issues and have all the relevant documents before starting the due diligence process.
If you’re preparing your company to be assessed by a potential buyer, Paladin CMS can provide you with professional business valuations, M&A advisory, expert due diligence guidance and transaction advice. Our expert team of consultants can help you address the areas of your business that need extra support and help prepare your company to meet with potential buyers.
Don’t let logistical oversights ruin the due diligence process for your company. With a few small adjustments, you can turn your company into a smart financial decision for any buyer. For more information about our merger and acquisition services, contact us today.