Many business buyers believe that they have the ability to handle a large portion of an M&A deal on their own, without the assistance of an M&A professional. However, in the instance of due diligence, the old adage “buyer beware” could not ring more true. While due diligence done by the business buyer may save money, the buyer will most likely end up paying for it in the end.
Due diligence is implemented in every M&A and business brokerage deal so that the buyer has the ability to comb through all of the target’s affairs in order to reveal any problems that could affect the deal. Without professional assistance, an inexperienced business buyer has the potential to overlook many possible factors that could adjust the worth of the business. Thorough due diligence is vital so that the buyer may ensure that their side of the deal is of fair value. More importantly, if the buyer has shareholders, the due diligence must be performed properly, not only for their own benefit, but also to prove the investment’s worth to the shareholders.
For those wondering if the cost of hiring a professional is worth the benefits, consider the purchase price of the target and what portion of that will be dedicated to due diligence. Oftentimes, if a buyer puts due diligence into this perspective, hiring a professional becomes a small fee in comparison with the amount of capital that is going into the deal. It is crucial that each step of the M&A process be done correctly and completely in order to avoid business acquisitions that only deteriorate in value after the deal has closed.
Another reason that business buyers should avoid performing due diligence without an expert is that emotions can sometimes play a part in their work. If the buyer is excited about the business, he or she may be more apt to underplay negatives or move too quickly in order to finish the deal. Be sure that the desire to perform one’s own due diligence is not caused by a desire to close the deal at any cost.
When it comes to just about any large business decision, people often request the opinions of others before making a decision. This same theory should apply to due diligence. Certain findings that may arise will require a second opinion, especially if the person performing due diligence is emotionally involved in the process. An M&A intermediary along with your accounting and legal advisors can utilize his or her professional knowledge to balance emotional opinions. An M&A advisor could ultimately assist the buyer in lowering the payout price and obtaining better terms than if the buyer completed due diligence alone.
George & Company, located in Worcester, MA, offers professional due diligence services. Please contact us to learn more about how we can help you, as a buyer, receive the best price for your business acquisition.