What do I need to know about due diligence?

What No One Tells You About M&A Due Diligence (Until It’s Too Late)

Lack of Seller Preparedness. That's the one thing that has stuck out in every deal I have been a part of, from the $50,000 deals to the $50mm. 

Generally, this stems from a lack of experience in business transactions, a palpable naivete. For sellers who have never negotiated a deal, and even those who have, the process can be absolutely overwhelming. The intricacies of the negotiations, including the volume of document requests, the depth of inquiries into every aspect of the business, and the complexity of deal terms, can catch many sellers off guard. 

And don't get me started on Disclosure Schedules and the sheer panic I have seen in sellers' eyes when reviewing them. 

Most buyers want a quick transaction but private equity buyers take it to the next level and want to close yesterday. That level of pressure can create chaos for unprepared sellers. The problem with lack of preparedness is that it often leads to less than favorable terms, deal fatigue, and delay.

Before entering into negotiations, sellers should conduct their own due diligence. This includes:

• Financial Audits: Ensure that financial statements are accurate and up-to-date.

• Legal Compliance: Verify that all legal obligations are met and that there are no pending litigations.

• Operational Readiness: Assess the operational aspects of the business to identify areas

  
  

Private equity buyers are looking for value. Sellers should clearly articulate what makes their business unique and how it can provide a return on investment. This involves highlighting:

• Market Position: Describe the business's position within its industry.

• Growth Potential: Provide data and projections that demonstrate potential for growth.

• Competitive Advantages: Identify what sets the business apart from competitors.

Effective negotiation is crucial in securing favorable terms. Sellers should:

• Know Their Bottom Line: Establish a minimum acceptable offer and be prepared to walk away if necessary.

• Practice Negotiation Skills: Consider role-playing negotiations to gain confidence.

• Engage Professionals: Hiring experienced advisors can provide valuable insights and strategies.

Don't be unprepared. Call Dudai Legal where we are navigating complexity and delivering results, daily.