To readers: M&A Monthly columns consist of paid content from companies and organizations that have information and opinions to share with the business community. They do not represent the views of Finance & Commerce. Columns are accepted on a variety of topics and are subject to approval by Finance & Commerce management. To contribute contact Bill Gaier at 612-584-1537 or [email protected].
By: Brian Slipka
Due diligence is a process that should be started early in the life of an M&A transaction. Indeed, it is among the most important steps to take to ensure a successful purchase or sale of a business.
Due diligence is about the investigation and verification of a business, a transaction, or an investment. Done correctly, it will provide assurance that a potential investment is sound.
Both sellers and buyers should be doing due diligence.
For the Seller
Time is rarely on the side of the seller during a transaction, so forethought and an early start are imperative. Due diligence investigations last around 30 to 60 days, and that is just the first step of the process. The investigation identifies the issues or points that the buyer will attempt to use as leverage to ask for a more favorable purchase price.
Once the investigation is completed, the seller should work preemptively to resolve any issues. Some fixes could include hiring essential management or other employees, eliminating overhead, addressing shareholder concerns, or clearing bad debt. Addressing these problems ahead of a sale will make the process clearer and more organized, and it will allow the seller to get the most value from the business.
It is essential to address the issues before the buyer’s lawyers, financial advisors, and brokers get involved, start snooping around, and complicate matters.
In addition to helping a business owner resolve issues, the due diligence process can provide a business owner with a newfound understanding of the business. Thus, through completing the due diligence process, the business owner will be more prepared to sell and highlight the business strengths to potential buyers. This will pay off when it is time to sell.
An additional benefit of going through a rigorous financial and structural examination is that the seller could discover that the market value of the business is greater than originally expected.
For the Buyer
Purchasing a business is a significant commitment, and due diligence can help a buyer feel confident in choosing the right business to purchase and in knowing that the business is a worthwhile investment.
A key reason to perform due diligence is the reduction of risk. In other words, buyers should perform due diligence to ascertain exactly what they are getting into before they make a large financial commitment.
Due diligence for the buyer can include reviewing financial records, evaluating past performance, meeting management or key employees, assessing the company’s culture, and understanding the potential assets and risks associated with the company.
General questions about the target business are also important. They allow the buyer’s team to gain a better understanding of the industry and the business in a broad sense before getting into the financials.
Some general questions can include:
- What is the strategic plan of the business?
- Why is the business for sale?
- What is the structure of the company?
- Who does the business target as its clients?
Enlisting a Skilled and Knowledgeable Advisor
Due diligence can be a confusing and unfruitful process without the right people spearheading it. With so many moving parts, it can be especially daunting for a first-time business buyer or seller.
Buying or selling a business is not a good do-it-yourself project. It should be a collaborative process with teams assisting both the buyer and seller. Ideally, it should be a process with skilled and knowledgeable M&A advisors leading the way.
Financials are important but not the only consideration in a transaction: Intellectual property, legal issues, workforce makeup, and production are all important factors to consider. Good M&A advisors know how to obtain the right information and how to process it and make it actionable.
At True North Mergers & Acquisitions, we have 14 advisors with longtime and diverse industry-specific expertise—in the medical industry, manufacturing, and in IT/SaaS, just to name a few. Several of our advisors are former business founders who went through the M&A process themselves and therefore know firsthand the questions to ask and issues to look for in the due diligence process. Such expertise is rare in our industry.
What this means is that True North Mergers & Acquisitions offers extraordinary resources, knowledge, and skills when it comes to performing due diligence.
If you are seeking to sell or buy a business, you should have the resources of True North Mergers & Acquisitions in your corner to ensure that the due diligence process provides you with the best possible intelligence for the best possible business transaction.
Brian Slipka is CEO of True North Mergers & Acquisitions. More information about True North Mergers & Acquisitions and Brian Slipka is available at https://www.tnma.com/.