Sell Side Due Diligence—Is it Worth it?

In a typical M&A deal, the business buyer will perform due diligence in order to fully gain knowledge of the inner workings of the target company. The due diligence process allows the buyer to confirm financial statements, unearth possible liabilities, and determine an appropriate purchase price for the business.

However, sell side due diligence has recently gained popularity within the M&A industry. Before the deal commences, the seller hires an accredited professional to perform due diligence on their company. This allows the seller to back up financial information with concrete evidence and places a higher amount of credibility in the hands of the seller. Various advantages can be found in choosing to procure sell side due diligence.

For example, providing the results of sell side due diligence has the potential to improve the company’s purchase price, because it grants the potential buyer with a smaller workload when they approach their own due diligence portion of the deal. The M&A professional may also uncover positive assets that the company holds, which can be leveraged in negotiating a higher purchase price.

Another benefit of sell side due diligence is that the seller can spot any problematic areas of the business before the buyer does, and therefore work to improve these issues before the buyer has a chance to lower the valuation numbers with these findings. It also allows the seller to prepare for potentially difficult questions that the buyer may raise during the course of their own due diligence process. Honesty can improve the seller’s repute, especially since buyers are typically skeptical when it comes to buying a business. Additionally, since the economy has declined, buyer due diligence has become increasingly more intensive, making it all the more important for the seller to be upfront about all company issues.

So why do many sellers opt to allow the buyer to handle the entirety of the due diligence process? For one, many sellers unfamiliar with M&A are wary to invest in a preventative measure that they view as discretionary spending. However, the cost of the sell side due diligence service is frequently outweighed by the advantage in leveraging power which results in a higher payout. Aside from the price of hiring a certified professional to perform sell side due diligence, no real negatives exist.

If you are interested in learning more about sell side due diligence, please contact George & Company. We would be happy to assist you in all of your M&A needs.