Mergers and acquisitions: Frequently Asked Questions for the due diligence process
What is the most important task when selling a company?
What is important to sellers is that they do not lose control of the information or the process of releasing it. There are definite trade-offs in allowing buyers to determine the worth of the target but not give them ammunition for a lowball bid. The general rule of thumb is the larger the company being sold, the more information there is to disclose and the more vigilant the seller needs to be about controlling it.
What is the preferred method to control information access but still give buyers all the information they need to make the appropriate bid?
Set up a secure digital portal upon which to load documents, with tight security precautions and strict permissions as to who may access the portal. Make sure documents cannot be copied or photographed. There are many advantages to this method. For example, the ability to see which documents are being viewed, could potentially give the seller an idea of the priorities and negotiation strategy of a buyer.
Are there any standard industry practices for the bidding process?
Controlling the bidding process can impact the ability to compare bids. Sellers can require that buyers follow a strict timeline to make an offer and may also require that offers be structured and communicated according to a specific format.
What is important for the buyer’s side?
The due diligence process is one of risk evaluation. The risks are often buried in the documents and it takes experience and expertise to uncover them. The buyer’s team members need to ask the right questions and find the right evidence to determine if the target company is a good investment.
What can buyer’s side do to ensure a successful process?
In general, the buyer’s side needs a team of experts in fields like technology, marketing and finance, as well as lawyers who specialize in that industry or the process. Generally, the buyer team has a leader that manages the due diligence team and establishes deadlines for each task, as well as deliverables.
Do buyers simply give their best price, or are their negotiations involved?
After investigating risks, the team members summarize and analyze each risk on a percentage basis. Who covers which risk, the buyer or the seller? When the offer is made, risk assignment is an important part of the negotiation.