As a researcher, I’m gathering data on the timeframes involved in buying and selling small and midsize businesses (SMBs), particularly the outsourced tasks.
Objective: To understand the duration of outsourced tasks in SMB transactions. This information can enhance our understanding of the overall dealmaking process and timelines.
Data Needed: The number of calendar days from when you outsourced tasks to when you received the final output (report, decision, funding, etc.).
Why This Matters: This data can help forecast dealmaking durations more accurately. It’s important to note that some of these tasks may occur concurrently.
Your Contribution: Please identify your role (buyer/seller, advisor, lender, etc.) and (hopefully) the purchase/sale price of the completed deal(s).
Survey vs. Anecdotes: Estimates from a larger population of dealmakers are more valuable than anecdotal information from a few individuals.
Invitation to Participate: Everyone involved in the process is encouraged to participate as each role offers a unique perspective.
Outsourced Activities: We’re interested in the completion times for outsourcing the following activities:
• Lawyers (LOI, legal due diligence, sale/purchase contract, etc.)
• Accountants (accounting/adjustments, accounting/financial due diligence, quality of earnings, etc.)
• Lenders (application-to-funding; not just approval)
• Business appraisers (assignment-to-report)
• Industry experts (assignment-to-report)
Additional Activities: Are there other tasks you’ve outsourced (e.g., fundraising from investors)? Please share those as well.
estimates below:
1) Financial/tax diligence as soon as you sign LOI and get through any remaining business diligence. Credible vendors here should be able to complete in 30 days IF seller provides necessary data (big if!) in timely manner
2) debt/equity financing: ramp up as soon as possible post LOI and once you have marketing deck/business plan written up. This timeline ranges widely, and debt financing likely requires keeping up to date throughout the whole process.
3) insurance diligence: ramp immediately after LOI, typically < 1 month to complete
4) business appraisers: ramp as needed based on bank requirements. These are generally pretty worthless to the buyer (assuming they know how to value companies themselves), but will probably be required by bank
5) lawyers: hire them immediately post-LOI, but they won’t ramp until final 30 days when legal docs get worked out ahead of closing. ***Important caveat: make your LOI as clear as possible on major deal points so you don’t have to renegotiate key terms at the end of the DD period prior to closing
All businesses have some level of seasonality and each acquisition is a little different, so nothing you get from us or others is going to be able to be confidently mapped on a very specific timeline.
Also keep in mind that the biggest causes of delays are rarely your vendors doing the job. They are almost always:
1) Your vendor being too busy to do the job. The wait can often take longer than the doing.
2) The seller and their vendors ("my accountant is really busy - he can get that to you in 3 or 4 weeks"). Some vendors actively build hours and slow roll the process because it's the last billing they're going to get from this guy and they know it. Others use the same knowledge to make your requests last in line.
and
3) Your interaction with the seller. If you haven't project managed your due diligence well, your seller has no idea what's coming. Expecting them to drop everything and jump on your request immediately isn't realistic for someone spending almost every waking moment working on their business.
But, for the sake of the data, here is what we've found:
Legal Due Diligence usually doesn't take that long. Roughly 2 weeks depending on the complexity and number of their contracts. The checks for current or past lawsuits is just a check of a database or two.
Accounting Due Diligence usually is the slowest of them all. The accountant doesn't want to do one-off work and they have the most intense busy seasons (tax season, end of year season, etc.). Also it is apparently taught in accounting school that business is slow during the summer, so they all take vacation at the same time. The actual work is usually 2-4 weeks.
Lending - While lending involves them doing due diligence on you and the company, I usually think of it as a separate process. From application to setting a funding date is often 90 days. Longer if they see complications with the deal. Longer if you don't know the numbers inside and out.
Business Appraisers - We almost never use appraisers unless it is the specialized appraiser for valuing the equipment in the business. There are so many levels of appraising a value that any timeframe I'm going to give you is meaningless. There are fully remote appraisers who can have it done in a week. There are hands-on, onsite appraisers that can take a month if there are a lot of physical assets and moving pieces. For businesses north of 50 million, all bets are off.
Industry Experts - It depends on what you want them to do. I have frequently gotten what I've needed with a 1 day visit and interview by the industry expert and maybe a week to get their report. ProTip here is to take them to a relaxed pace, lengthy dinner and have them speak their findings. These guys aren't great at reports.
HR Due Diligence - Eventually, you'll want to do a background check on all of the employees or at least understand what was done when they were hired. Usually, it isn't much. This process can take a month or more with a lot (100+) of employees.
Risk Due Diligence - The review of the various insurance coverages and comparison to what is legally required by their state, contractually required by their customers, and just wise to have in place (E&O insurance, anyone?) is a roughly 2 week process.
Technical Due Diligence - If technology is a significant part of what you're buying (whether through the systems they employ or the business *is* technology), you'll want to do technical due diligence to understand what is there, what isn't, and what your risk is. The good news is that this is relatively quick once your seller is willing to give you access to their network. The bad news is that the seller isn't going to want to give you access to his network.
Hope this helps you figure your process!