Buyer due diligence is the most important step in the process of selling a company. In our view, it is more important than the purchase agreement. If a seller cannot successfully navigate through buyer due diligence, then there is no need for a purchase agreement.
Exhaustive due diligence is typically conducted by a single buyer that the sellers have selected, as evidenced by a signed Letter of Intent (LOI). This post-LOI due diligence process typically takes 60 to 90 days and is led by the buyer, who usually will engage a team of third party professionals to supplement an internal due diligence task force. Such managers and professionals usually include product / service staff, operations staff, compliance personnel, attorneys, accountants, tax specialists, and others.
The objective of buyer due diligence is to afford the buyer the opportunity to verify that all the information that the sellers have previously provided (typically through a Confidential Information Memorandum) is accurate and complete. The buyer’s due diligence team will conduct deep analyses into all areas that materially impact future cash flows, and will typically use any inconsistencies, inaccuracies, and lacking disclosures to drive down the purchase price negotiated in the LOI. This process is tedious and requires substantial time and attention from the management of the sellers, to respond timely and accurately to a plethora of buyer due diligence requests.
The key to sellers successfully navigating exhaustive buyer due diligence is to meticulously prepare for the sale process by conducting their own exhaustive due diligence well in advance of starting the process of talking to potential buyers. In so doing, both the buyer and seller will be pleased with the buyer’s finding in due diligence, which will lead to a successful closing at the price negotiated in the letter of intent.
Have a Great Day!
Managing Director, Defense