The purpose of confirmatory due diligence, in an M&A transaction, is to afford the buyer the opportunity to confirm the accuracy of the historical information provided by the company’s management and the soundness of the buyer’s projection assumptions for the company.
Typically, Buyer Confirmatory Due Diligence is conducted during a 90-day period of exclusivity after the execution of a Letter of Intent between the buyer and the seller. Accordingly, it is essential that a selling company consistently provide accurate historical information and reasonable projection assumptions to the buyers, from the first time these issues are discussed.
Buyer Confirmatory Due Diligence requires an enormous amount of work on the part of the management of a company being sold, as well as by the potential buyer of the company. In due diligence, most buyers will seek to verify that all pertinent information of the company is accurate, so that they can confirm all of the factors going into their assessment of the value of the company.
The key to successfully navigating buyer due diligence is to supply fully vetted historical data and reasonable projection assumptions. Conversely, supplying inaccurate historical information, withholding negative historical information, or providing unreasonable projections— inevitably leads to crises in due diligence and either results in a deep discount to the sale price or a failed sale.
In our 20+ years of representing sellers in M&A transactions in the middle market of the A&D industry, never have we seen a buyer fail to conduct exhaustive confirmatory due diligence.
Accordingly, we work hard with our clients to ensure their historical information is vetted and accurate and their projections are supportable and reasonable, to ensure buyer due diligence is a formality and does not result in a deep discount to the price or a failed sale.