So, you’ve found a buyer for your business. You’ve signed a heads of agreement and are ready to get the deal done. Whilst you’re keen to exchange contracts, there’s a lot that needs to happen before that’s a reality.
One of the first steps of any M&A deal is due diligence. Essentially due diligence in the M&A process is the opportunity for the buyer to explore all facets of your business, so they know exactly what they’re buying into and that buying your business is a good investment.
t can be viewed as a deep dive into your company: financials, compliance, clients, stakeholders – everything. Expect a high degree of scrutiny – the buyer is looking to expose risks that may not be initially apparent so they can make an informed decision.
Be prepared
Due diligence for an M&A process can be a long one – generally, expect it to take between 30 and 90 days. During this time, you’ll work closely with the buyer and whilst it may seem tedious, complicated and arduous, remember that the buyer’s goal is the same as yours – a successful deal. Being upfront and accessible to the buyer’s requests is vital. It can help to have key contact available for them.
During M&A due diligence, your workload deviates from normal operations. As the process of due diligence progresses, your team’s daily tasks are likely to evolve. This may entail participating in daily calls and responding sporadic inquiries seemingly nonstop. Until due diligence is done, you will not be able to focus completely on your business and you should realign your team to prepare for this so that your operations do not suffer.
Documentation and records pertaining to your business are a large part of the process, so it’s also a good idea to have an electronic ‘data room’ ready. A data room essentially provides a one-stop-shop for both parties to access the documentation they need.
It’s essential to meet all the buyer’s expectations – building their trust is critical; you don’t want them to feel out of the loop or unsupported. Keep in mind that a poor due diligence process can lead a buyer to devalue your business and reduce their initial offer or to walk away.
Understand the buyer’s process and protect yourself
Buyers will typically provide you with a request checklist to work through.
Usually, the checklist is exhaustive and organised in a logical fashion, encompassing everything from your products and services to information about your clients, employees, contracts, financial and tax records, licences, assets, and legal issues.
It is crucial that you strategically prioritise the information to be presented to the buyer and control which employees the buyer has access to. Understand what you will need to supply and when and how you will need to share it. Keep in mind that if the purchase falls through, exposing highly sensitive information and key personnel prematurely to the prospective buyer could be detrimental to your business. Develop a plan for protecting the confidentiality and privacy of sensitive information.
Communication is key
From the outset, it’s important to stay on top of the buyer’s requests. Provide them with a key contact – and for larger deals; it’s a good idea to put together a dedicated M&A team consisting of key subject matter experts from your business and from your professional advisory team.
As a business owner, it’s generally not your job to understand all the minute details of your day-to-day operations. Ensuring the buyer has access to your subject matter experts who can attend to queries quickly can instil confidence in the buyer that you’re not hiding anything.
Keep calm and carry on
M&A due diligence is a stressful time, but don’t lose sight of the finish line. While your and the buyer’s goals are aligned, due diligence from a buyer’s perspective can be an opportunity to expose risks and operational deficiencies, driving the prospect of reducing their offer, changing the pricing or payment structure or requiring you to bear more risk in the sale contract.
Purchase price adjustments can be triggered by numerous factors, including employees being paid too much or too little, outstanding compliance issues, or even anticipated regulatory reviews and legislative changes.
It’s obviously in a buyer’s interest to maximise its investment and to minimise risk. If a reduction is unjustified, remember to be firm and don’t sell yourself short.
Don’t lose sight of the end and maintain perspective
The art of the deal is a balancing act between your expectations and the reality of the buyer’s offer. Whilst being prepared will make the deal that much smoother, understanding and anticipating all the facets of the M&A process is no mean feat – it’s time consuming and a lot of hard work.
At Ascenta we have a track record of making deals happen. We can help you prepare for and support you during the M&A process, taking the pressure off, saving you both time and resources and increasing the likelihood of completing your sale successfully. Speak with us today.