An M&A deal can be a lengthy ordeal, especially the due diligence portion of the process. During due diligence, the buyer examines all of the business's financial documents in order to ensure that everything is as previously represented. Due diligence assists the buyer in determining whether or not the target is in fact one that they truly want to buy.
During the duration of the due diligence process, it is imperative that the business owner continue to run their business as usual. Handling both tasks simultaneously can be stressful, given that the M&A process will be taking up a large portion of their time. However, if sales slip, it could mean a change in the value of the business. If the business value decreases, then the seller will end up walking away with less money, or the buyer may choose to walk away from the deal altogether. A deal failure can be costly due to the amount of time and money already invested in the M&A process.
With that in mind, it is important that the seller not make any substantial business decisions that have the ability to affect the operations of the overall business without first consulting the buyer and his M&A advisor. Even though the deal is not yet finalized, any major changes in personnel, finances, or assets could impact its outcome. Including the buyer in on any major decisions will help keep the process running smoothly and will help to reduce the need for adjustments in the final agreement. It is important that the buyer and seller have similar goals for the business in mind in order for the deal to be successful.
The due diligence process should be kept as private and confidential as possible. Employees that get wind of a potential sale often fear their job security and will begin searching for a new job. Investors and clients may also leave, since many people assume that a sale means that the business is going under (which is, of course, not true.) Inform management on a need-to-know basis. The buyer and seller should enter an agreement that disallows the buyer to speak about the deal to any outsiders, especially the business's employees. A non-disclosure agreement will penalize either party for leaking sensitive information before the deal closes.
The seller should also conduct their own due diligence in order to confirm that the buyer's findings are accurate. While it may seem like a hassle, conducting due diligence is actually a great way to do a self-audit. In many cases an experienced M&A professional may have already performed this task.
The best way to ensure that the due diligence process is completed without complications is to be honest, as well as maintain the business in a prudent manner. If you are a business buyer or seller, and would like more assistance with the due diligence process, or any other aspect of your M&A deal, please contact George & Company. We are experts in the sale, appraisal, and financing of mid-sized businesses, and would love to help you navigate this process.