Acceptable level of diligence
September 14, 2024
by a searcher from University of Virginia in Chattanooga, TN, USA
I’m under LOI on a small deal and the seller is hesitant to export and share his quickbooks because he says they have intermingled their personal information and assets. Rather than fight with him about what he can and can’t show me, I’d rather just ask for the stuff I need for diligence. What’s the minimum level of information you would need to feel comfortable moving forward on a deal? For what it’s worth, I think the guy is honest and trustworthy, just private vs. trying to hide something. Just my gut reaction though.
from Massachusetts Institute of Technology in Apex, NC, USA
There is so much that can be manipulated in a business books (tax returns are nice but often don't give enough info IMO - just what guy is willing to tell gov't). Just with inventory, A/R, someone could easily swing 10% and no one would be the wiser. Large public companies routinely count their inventory "wrong" by millions of dollars.
3rd party would be fine if he doesn't want you to have access.
The only cavet to this is if a) you know industry well b/c you run business in it b) you're buying for topline only for bolt-on c) it's so dirt cheap it's nearly impossible for it to go wrong (e.g. assets can be sold (not bought) for more than purchase price)
To quote old poker saying, if you can't tell who's the sucker at the table, it's you.
from Harvard University in Cambridge, MA, USA