A well-executed M&A process demands a significant amount of due diligence from the buyer. The buyer wants to know what they are acquiring, and which obligations the purchase will entail. Due diligence is all about clarifying that picture. In some cases, this process may affect valuation, since undisclosed liabilities that come out during due diligence may have far-reaching effects on the company’s value.
The specifics of the process will depend on the type of company or companies involved, as well as the unique issues associated with the transaction. But the following 10 elements generally figure prominently in due diligence:
- Financial issues. The buyer wants to know about the company’s financial history and projections, and will also want to weigh projections against the realities of past performance, market conditions, and other factors.
- Intellectual property and technology. The technology and IP of the company can add significant value. It can also be a source of constant work. The purchaser will want a full inventory, and will also want to assess any issues with the suite of products the seller has.
- Sales and customers. The buyer must have a detailed understanding of the company’s base of customers and customer concentration. It must also understand the sale pipeline and process.
- Issues of strategic fit. The buyer doesn’t just want a successful company. It also wants a business that will strategically fit into its existing operations. This process is unique to every buyer, but often involves looking at staff, operational processes, and other aspects of the company that can affect cultural fit.
- Material contracts. A buyer must review all contracts and commitments. This is often one of the most time-consuming aspects of due diligence. Where a contract doesn’t exist, due diligence may include tracking down the paper trail associated with the deal.
- Management or employee issues. Your team can make or break the deal. Your buyer will want a comprehensive review of your staff and management.
- Litigation. Many large businesses face litigation. Sometimes it’s the cost of doing business. But litigation can also threaten a company’s financial solvency. You’ll need to go over ongoing litigation, areas of legal exposure, and any threatened litigation—often with the assistance of your legal department.
- Tax issues. Tax due diligence may be critical or tangential depending on the company’s history. In either scenario, the buyer needs a clear understanding of the company’s tax position.
- Regulatory and antitrust issues. This area of scrutiny has accelerated in recent years.
- Insurance. The buyer needs a clear overview of all insurance policies.
About Creative Business Services
Since 1979, Creative Business Services has specialized in the sale of businesses and companies throughout Wisconsin. We have the experience to assist you in the difficult process of selling or buying your business or company.
Creative Business Services is a leader in the growing and dynamic business brokerage industry, providing its team of professional brokers with tried and true tools and methodologies to help buyers and sellers get businesses transferred. In addition, Creative Business Services offers its affiliate brokers the most advanced technology to manage their offerings and buyers, to generate professional reports, and to outperform the competition.