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How to Successfully Navigate Due Diligence

By Generational Equity

11/06/2017

Recently, Axial, an online leader in the M&A industry, produced an interesting article on some of the pitfalls that often arise during due diligence. These pitfalls could singly scuttle any deal structure, and if they all occur (which happens more often than you may think), you can bet that the deal will not close or the time it takes to close will expand dramatically.

All points that were made in the article were certainly valid and useful, but one really stood out:

Leaving money on the table at closing.

Now at first glance, you might think, “Well of course you are not going to leave money on the table. Who would do that when selling his or her business?” The reality is, without professional representation, it happens frequently.

Why?

Because even though you are most likely an expert in running and operating your company, you probably will sell only one business during your professional career. Because of this, and since you will be dealing with professional buyers who buy and sell dozens annually, you will be at a distinct disadvantage. This is how Mitchell S. Roth, Managing Director with the law firm Much Shelist and the author of the Axial piece put it:

“The process of determining a company’s value and asking price can be a nuanced one … It can be tricky to arrive at a fair evaluation … To help in assessing such value, assemble a skilled third party team of attorneys, accountants, bankers and other resources.”

This sound advice reminded me of a conversation I had a few years ago with Brad Whitlock, an attorney with Scheef & Stone, who has worked with Generational Equity dealmakers on more than a dozen deals. He echoed closely the comments of Mr. Roth.

Some of the key points Mr. Whitlock makes in this interview include:

“I think it’s important to note that it’s a rare instance where a business owner can sell his or her business to somebody out of the blue without getting any outside help. It almost just doesn’t happen.

Because the mechanics of selling a business are so complex and there are so many different variables involved, that to have a professional involved as an advisor, as an accountant, a legal advisor — to have that team is almost imperative to get the deal done. So I would really advise a seller to get your team together before you go out there.”

Optimize Your Transaction

Can you find a buyer and close a deal for your business without professional guidance? Sure, you can; it happens every day and, for many smaller companies, it may make sense to go that route. However, if you want to maximize the return on the investment you have made in your company throughout the years, having a team to help, guide, and ultimately protect you, not only during due diligence, but also in closing the transaction, is vital.

The fact is professional buyers are simply not going to look out for your best interests no matter how much you may like the ones you are dealing with. Rightfully so, they are going to protect the capital given to them to make multiple acquisitions and generate the largest ROI they can for their investors and/or shareholders. You need to be aware of this and realize that they will certainly assemble a team to help them defend and protect their interests at all costs.

Further reading: Due Diligence and Client Satisfaction Tests

To level the playing field, as both Mr. Roth and Mr. Whitlock so eloquently have described, assemble a team to navigate the minefield that due diligence can often become. Odds are good if you hire folks with extensive experience, teams that have worked on dozens and dozens of transactions like the deal teams at Generational Equity, you will have a much smoother transaction and a quicker timeframe to close your deal.

Time and space do not allow me to expand further on this key topic. If you are interested in learning more about due diligence and the entire exit planning process, you should set aside a few hours of your time to attend a Generational Equity executive M&A conference. These are complimentary and designed to educate business owners on the intricate yet manageable steps involved in closing a deal with an optimal buyer.

If you would like to learn more about them, or even register to attend one, please use the following links:

And remember, optimal deal structures require optimal teams. Build one and you will most likely be satisfied with the results.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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