As a company considers selling its business, it’s crucial to prepare for each phase of the sale process. In this deal note, I will address the post-LOI (Letter of Intent) due diligence phase, which is one of the most complex and demanding.
Post-LOI due diligence is akin to peering under the hood when buying a vintage car. It’s where buyers scrutinize every aspect of the business. This scrutiny aims to validate the information provided and uncover any undisclosed problems. As we mentioned in Deal Note® 31, it’s a critical phase that directly influences the buyer’s perception of your business’s value, its future potential, and their willingness to acquire your company at the price outlined in the LOI.
During this process, it is key to have strong procedures in place to provide and organize documentary responses to due diligence requests. For many years, to keep files well organized and readily available, we have used encrypted virtual data rooms (“VDRs”).
It is important that a company disclose all relevant information openly and honestly during due diligence, even if it may not paint the business in the most flattering light. Concealing or obfuscating problems will erode trust and derail negotiations. Buyers will be consistently checking provided information against all things stated orally and written, to ensure validity of all information provided. Any deviations can cause difficulties in negotiations. Any major deviations can derail the deal.
Long before entering into post-LOI buyer due diligence, you should enlist the expertise of accounting, tax, environmental, risk management, and employee benefits advisors experienced in M&A transactions. Their talents and insights will help you navigate the challenges of buyer due diligence and ensure a successful sale process for you. Also, because due diligence can be extremely time-consuming and demanding on your staff, enlisting the help of third parties can alleviate the burden on your employees, who will be essentially working two jobs during post-LOI buyer due diligence.
To conclude, navigating the post-LOI due diligence process can be onerous, but one can emerge successfully with careful preparation and guidance from experienced professionals, in addition to your M&A Bankers and M&A Legal counsel.
Have a great day everyone.
Max McFarland
Associate
