Due diligence is a critical element of any business sales process. A buyer will normally complete an initial commercial and financial appraisal before submitting a non-binding offer. However, the buyer’s detailed due diligence is generally only completed once the key commercial principles have been agreed between the parties. While agreeing heads of terms is a major milestone, the successful completion of the transaction will still hinge on the outcome of the due diligence exercise.
In order to simplify the process, it is becoming increasingly common for sellers to prepare their own vendor due diligence report before approaching prospective purchasers. By performing a comprehensive examination of the business before going to market, you may identify areas that can be addressed upfront and avoid unforeseen issues arising at a later stage. This approach should speed up the purchaser’s due diligence and narrow the risk of price renegotiations.
Before selecting a preferred buyer, it is important to understand their due diligence requirements, as they may differ in terms of breath and approach. A buyer will generally want to gain a detailed insight into the commercial, financial and legal aspects of the business. Depending on the nature of the business, the scope may also include a review of areas such as information technology, human resources, health and safety, regulatory, environmental and facilities.
At a minimum the buyer will be looking to verify the information that it has relied on in agreeing the terms of the non-binding offer. The buyer may use the exercise to gain a deeper understanding of the risks and opportunities for the business to ensure that the investment continues to make sense. A buyer may also be looking at the cultural fit and aspects related to its pot-acquisitions integration plan.
As a seller, the due diligence exercise can be a very intrusive and disruptive process. It can be challenging for the management team to maintain focus on the day-to-day operations while at the same time responding to extensive queries from the buyer’s due diligence team. It is advisable to assemble a dedicated team to oversee the due diligence process.
Crowe’s corporate finance team has a wealth of experience advising clients on M&A transactions. We provide sell-side, buy-side and financing due diligence, providing a focused and tailored approach to each specific transaction. We can help you analyse risks and opportunities in financials, operations, people and culture so you can make an informed decision regarding the proposed transaction.
If you are considering the sale or purchase of a business, we can help you maximise your investment. Talk to our corporate finance team today.