Best practices for customer diligence?

searcher profile

August 05, 2024

by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA

I am under LOI on a business with 250 customers. I want to learn more about the industry and the company's reputation by talking to customers during diligence. What's the best way people have done this? Cold call? Any best practices for getting good feedback while maintaining confidentiality?

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commentor profile
Reply by a lender
in Stuart, FL, USA
Mike Adhikara is 100% correct. Anyone that doesn't understand this has never been a seller nor sold a business. If the buyer goes behind the sellers back and calls any customers, that is a complete breach of trust, and the seller should back out of the deal if not sue the borrower. This is how legacy businesses get destroyed. You are dealing with humans which are wildly unpredictable. If you just happen to call one that has an axe to grind, that one customer can call every competitor in the seller's area and tell them that he is selling because he is going broke or some other stupid reason. And before you think I'm exaggerating, yes people do things for malice for whatever reason and have no problem causing others a complete nightmare. Not saying DD isn't important, but there is a wealth of knowledge on the Web where you can find every stat known to man. If the seller is pushing back, you need to respect that. Learning how to improve the business model or customer satisfaction can be done post-closing and is also a good time to "touch the customer" with a new face. This may also make a case for a solid QOE.
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Reply by a searcher
in Toronto, ON, Canada
There is nothing wrong with you insisting to speak to customers as early as possible during due diligence and especially before you sink a lot of costs into the process. The seller can introduce you as a potential strategic partner to the customers as in you are someone looking to work together rather than as a buyer of the business. Being introduced as a strategic partner would also be a great way to hear feedback from the customers on where the business could improve.

Another way of going about it is using an arms length third party to contact existing customers as as prospective customer. I would use an arms length third party, or someone that is not front facing in your deal team (potentially an intern), so that you do not have that next meeting with the customer and they find out you are now the owner of the business and souring the relationship.
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