How Are Data Analytics Impacting Due Diligence?
By Generational Equity
07/23/2014
A few weeks ago the Association for Corporate Growth (ACG) hosted a webinar entitled “Going Beyond Traditional Due Diligence – Using Data Analytics to Gain Unique Deal Insights.” The speakers were Steve Martin and Patrick Gilbert of BKD, a leading accounting and business advisory firm.
The fascinating webinar revealed how professional buyers and their advisors are using data stored on sellers’ MIS (management information systems) to gain knowledge and information that before was either not requested or simply not addressed until after a deal closed. Martin and Gilbert appear to be on the cutting edge of a new kind of forensic due diligence, a due diligence that in their words will often “flesh out information not even known to the seller.”
And this is the key point I wanted to pass on to the potential business sellers that read this blog: Without professional M&A advisors, you are at the mercy of this new due diligence. If buyers can learn key information about your business that will enhance its growth over the long term, and you are not even aware of it, you could be leaving millions on the table in unrealized value.
Although many of you probably won’t encounter buyers that are advised by the smart folks at BKD, you can rest assured that over time, more and more buyers will use your MIS system to gain information, prior to the deal closing during due diligence, that you may not be aware of.
How do they do it? Once due diligence is in process, buyers simply ask for access to a target's MIS, ERP, CRM, accounting software, i.e., all components of your computer system. Of course this has been standard for years, but buyer advisors like BKD look even deeper. This is how they describe it:
“We do a deep dive into the ERP of the seller, going beyond the financials provided and look into synergies in the data BEHIND the financials.”
The reason that they are able to do that is they are experts in forensically searching for links between financial data and how that data can lead them to areas needing improvement. Business owners, for the most part, lack the experience, training, and skills to do this on their own, and without professional M&A advice, again, they could leave literally millions on the table when the deal closes.
Professionals like BKD help their buy-side clients find hidden gems of value all the time. Do you think they inform the seller about the value enhancers that they discover during their data analytics due diligence? Why would they? They work for the buyer!
Bottom Line
I share this information with you to let you know that if you want to optimize value, you will need professional help. We recently concluded a series on the key steps to follow for a successful business sale. The last part of the series pointed out how important it was to have a company professionally evaluated before hitting the market. I will go one step further and tell you that not only do you need your company evaluated, you also need a M&A advisor to help you determine your hidden gems and ways to enhance your value before (or even during) the marketing of your business.
One of the very unique features of the Generational Equity program is our Roadmap to Enhanced Value (REV) that we provide to every company we evaluate. The REV is designed to do what BKD does for its buy-side clients: Analyze the financials to determine areas that, with only a little effort, can potentially improve the company’s value and sale-ability in the market. To the best of our knowledge, few M&A intermediaries go to the extent we do to help our clients enhance their valuation metrics via our own data analytics program.
If the thought of leaving millions on the table terrifies you and/or you are intrigued to learn more about how you can take steps to improve your company’s market value, give us a call at 972-232-1121 or fill out a contact form. We hold complimentary educational M&A seminars throughout North America that are designed to help business owners learn about how to avoid many of the common mistakes made during a business sale, one of which is under-valuing your business through a lack of awareness regarding its true value and growth potential. Attending one could help you immensely as you approach buyers.
Special thanks to the ACG and the folks from BKD for showing us a new form of detailed, intense data analytics used in due diligence in today’s market.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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