5-Min Read
April 2022
What to Expect During the Due Diligence Process
The due diligence process can be painful, but it is necessary, as it allows a potential acquirer to stress test and be confident in the data and discussions they’ve seen. In addition, not all requests are financials related, many requests are more operational in nature and relate to how the two companies will eventually fit together.
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Insight Details
How to Prepare your Company for Due Diligence
You’ve been trying to sell your company, and now you have finally found your preferred buyer. The LOI is in hand, and it may feel like the work is behind you. However, due diligence, the last major hurdle, still lies ahead before a transaction can be completed.
If you have ever been through an audit, this process can feel very similar. Due diligence can seem daunting, but by following some of the tips below you can set yourself up for a smooth process.
If there’s only one take away it’s this, build a data room. Depending on your business, the volume of files being requested makes it impossible to manage what items you’ve sent via email. Further, using a VDR ensures there is a single source of truth for all the documents shared between the two parties and service providers only have access to the files they need.
Bottom line, using a VDR provides the foundation for a more organized and better controlled due diligence process. If you’re working with an M&A Firm, this should be the standard practice. How the data will be organized and distributed during due diligence is a fair question to ask prior to signing on to work with your consulting firm.
Prepare as Early as Possible
Request lists may differ depending on the potential buyer and their background, but there are a handful of core items, like detailed financials, that every group will ask for. Being unprepared to provide these documents can indicate to buyers that operations and processes are not up to their standards. In addition, while in some cases it’s necessary, working under a time deadline leads to unnecessary stress and potential errors. Further, these self-inflicted deadlines can create animosity within the existing employee base towards the eventual acquirer.
Overall, it’s best to drop your core due diligence items into a VDR early in the process for a smoother process.
Establish Time Frame
It’s very important to establish an understanding between seller and buyer of the length of time it will take to complete due diligence. In addition to establishing an overall time frame, it’s also imperative to cement the smaller short-term goals that keep this process on schedule. By agreeing on a schedule, both parties can keep the other accountable and avoid the fatigue that is so common at this stage in the process.
The due diligence process doesn’t have to be painful. It can be relatively smooth and easy if you are prepared for the requests and understand that it’s a marathon not a sprint. Using the tips above, you too can make expertly navigate the process. Despite these tips you still may find yourself wanting support as you navigate this process. If so, let’s set up a meeting and see how Encore AMC can help you.
Start the Process
Today’s companies need agility, fresh thinking and a high tolerance for disruption to seize market opportunities and embrace new business models. We combine creativity and forward-thinking from a team of executive leaders who can advise, maximize value through M&A, and consult on strategic initiatives.
We combine entrepreneurial empathy and deep expertise in leading M&A and financing transactions to plan and execute effective acquisition and exit strategies, in harmony, with our clients. Our goal? Your encore.
Nicholas Barton, CPA
Nicholas Barton is a respected certified public accountant with SMB and Big Four experience. Nicholas manages Encore AMC client process improvement initiatives, which include the implementation of procedures to streamline accounting functions aimed at driving insights into performance at various levels as well as instituting cost controls.
A CPA, Nicholas began his career at PwC and has led multiple finance and accounting initiatives, including M&A, for a variety of Encore clients.
Nicholas offices out of the firm’s HQ in Newport Beach, California and works closely on all transactions with Chris Baker, Partner, M&A Finance & Accounting, who offices out of West Palm Beach, Florida.
