Mergers and acquisitions: Frequently Asked Questions for the due diligence process
What is the most important task when selling a company?
Controlling the process is of the upmost importance. Sellers do not want to lose control of their confidential or proprietary information. But at the same time, this a serious buyer will need to this information to do their due diligence. 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. It is important to ensure that documents cannot be copied or photographed without your knowledge or permission. 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 time, 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 mergers and acquisitions. Generally, the buyer’s team leans on the attorneys to lead their team and manage the due diligence process as well as establish deadlines for tasks and 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. At this point it is important to allocate the risks between the buyer and the seller. The purchase price is just one part of the deal and risk assignment is an important part of the negotiation.