Due Diligence Best Practices:
For Sellers As Well As Buyers
Planning and executing an effective Due Diligence process is extremely important to ensure you have made the right decision – who are you going to sell your business to and why them? It has become obvious to me, based on the numerous M&A transactions I have been directly involved in, that the most successful transactions have been those in which the seller has had an organized and complete Due Diligence process as well as the buyer.
It is critical to point out that a thorough Due Diligence process is also important to both parties. This post will provide “do’s” to creating an effective Due Diligence process that will be valuable to both parties.
Do #1: Identify potential buyers. It is generally known who the buyers are in your market segment. If they are not obvious to you then here is where to find them. The best sources are your publisher’s partner account managers and sales managers. They will know who the active buyers are and can be a source of pertinent information about them. Another source is an internet search for sales in the last 12 months of businesses in your category. Most transactions that are relevant to you will have press releases and stories in industry publications like Computer Reseller News, Accounting Today, and others.
Do #2: Narrow down the list. It is important to qualify your potential list of buyers utilizing the criteria outlined in my previous blog post; Find a match on Life Values, Ensure the Buyer has the Financial Wherewithal for Transaction, Look for a Buyer with Broad and Deep Technology and Services Portfolio, the Best Buyers have Positive Relationships with Publishers, and they have a Proven Track Record of Successful Acquisitions. If more than one potential buyer emerges then engage with them and qualify to the single best choice.
Do #3: Prepare your financials and other relevant documents: This includes income statements, balance sheets, tax returns, customer lists with details on customers with subscription plans and those that do not, what versions of the application software customers are on, and any other documents that will be requested by potential buyers.
Do #4: Utilize the following process for your Final Qualifying Cycle:
- Deep Dive Research on Potential Buyers (Company, Culture, Leadership, Employees, Vendors, Customers, Financial Statements, Policies & Procedures, Reputation in the Marketplace, Opinion of Competitors, Glass Door ratings).
- Ask to meet with employees and pertinent managers and leaders.
- Arrange to meet with representatives of Buyer’s publishers.
- Ask to speak with principals of recent acquisitions by Buyer.
- Ask for validation of the financial standing of potential Buyer.
- Ensure the payout process is structured and organized.
- Review information and make a decision on your preferred Buyer.
Do #5: Prepare same information in “Do #4” for your own company to be presented to potential buyer.
Following this Due Diligence framework will provide you and the Buyer with a firm foundation of information needed to make a sound and successful business decision. After all, you’ve paid your dues and now it’s time to collect.
If you have any immediate needs or want to schedule a meeting to discuss your specific business, please don’t hesitate to email me today.