Due Diligence Best Practices
March 17, 2021
by a searcher from The University of Chicago - Booth School of Business in Sydney NSW, Australia
Hi all,
Hope 2021 is treating you a lot better than 2020!
Curious to hear about Searchers' DD journey and wondering if I can tap into collective wisdom of this community for DD best practices, specially around the soft contentious topics such as WC negotiations or building rapport with the staff, suppliers, etc.
I am about to kick-off exclusivity arrangement with a very good Industrial Electrical Manufacturing and Services business next week. Curious to hear stories about what worked, what to look for, etc. when oher Searchers' went through this path.
Thanks in advance!
PS: I have already scanned a lot of readily available great content on DD such as Axial's DD list, Jim's blog, etc. Thanks to the authors for putting those docs together.
Cheers,
Ankit
from Harvard University in Omaha, NE, USA
1. Focus on 5-6 clear go/no go confirmatory diligence items. What are examples of go/no go? Client analysis and retention, Sales (includes bookings, pipeline, resulting backlog), Tech diligence (I buy technology companies), HR, QoE, Legal (IP, liabilities, APA). Figure out what makes sense for your deal. Don't due diligence every little thing. You need to accept that there will be "hair on the deal." If you're buying assets, you can position yourself with protection anyway.
2. Prioritize those that you can confirm first yourself before you start paying lawyers, accountants, etc. That way, if you determine a "no go" yourself and kill the deal, you've avoided significant broken deal costs. What's an example of something that you can confirm yourself? Client analysis and retention for both logo and revenue. Or Inventory. Or Sales. While doing this, begin prepping your Legal and CPA teams with what's coming but not to start until you give the go sign.
3. Provide a schedule of events (e.g., Gantt chart) of the process and requests to the Seller. Deal fatigue on these small deals are a real thing and you need to vigilantly guard against it.
4. Create Teaser & CIM and begin shopping banks (and investors if you need funding). You can start this as soon as the ink is dry on the LOI.
5. Build rapport time in with your seller to keep them excited and focus on the good life post deal.
6. Schedule a weekly conference call between you, the seller, investors, bank, CPA, and legal. Run the meeting on progress, get updates, and address anything that is falling short as a cohort. Builds transparency and trust--and it keeps the train on the track.
7. Build your 90-day post acquisition plan. Get some input from the seller. You might not use it, but it again keeps them focused on looking past the sale.
8. Talk to clients (if you can). If you can't, hire a third-party marketing firm to do the market research for you. Shields you and the seller because the customers don't know where it's coming from.
So, this is high-level, but hopefully it's helpful to you. Remember -- you are the quarterback. It's on you to get this deal into the endzone. Don't assume, over-communicate, trust but verify. I also run 60-day due diligence periods, so I'm aggressive. I'm curious about what others do.
from Pace University in Chicago, IL, USA