Once an offer is accepted in the process of selling a business, it's tempting to breathe a huge sigh of relief, thinking the finish line is in sight. However, the arduous due diligence phase, which can take up to six months to complete, still lies ahead. This phase is crucial, and how it is handled can significantly impact the success of the transaction.
The due diligence phase is a time when your business is under the microscope, with the acquirer scrutinising every aspect. It involves a comprehensive examination of the business to verify all pertinent information. This includes a detailed review of financial statements, legal documents, contracts, customer and supplier relationships, intellectual property, and any potential liabilities. The goal is to ensure that the buyer fully understands what they are acquiring and to identify any risks or issues that may need to be addressed before finalising the sale.
Buyers will engage third parties—such as consultants, legal advisors, and accountants—to execute due diligence. These third parties often view the process as purely transactional, focusing solely on identifying potential risks without understanding the broader context or the spirit of the deal. They were not involved in initial discussions between the buyer and seller and may lack insight into the nuances that underpin the transaction.
While these professionals play vital roles in facilitating the deal, the heart of the transaction lies in the relationship between the buyer and the seller.
Here are four key pointers for a successful process.
Keep lines of communication open.
It is critical to keep open lines of communication with the buying party. Direct interaction between the buyer and seller helps ensure that both sides are aligned and that the intent behind the deal is preserved. Regular updates and discussions can prevent misunderstandings, clarify intentions, and maintain a cooperative atmosphere, ultimately facilitating a smoother due diligence process.
Preserving the human connection throughout the due diligence process serves another purpose: safeguarding the essence of the deal. Beyond financial figures and legal documents, M&A transactions are fundamentally about relationships—about two parties coming together to create value and drive mutual success.
2. Maintain control and communication.
One critical aspect to bear in mind is that the seller can easily lose control of the sale process if it isn't managed properly. Without a firm hand on the wheel, the seller might find themselves at the mercy of the buyer's timeline, demands, and priorities. To prevent this, it's essential to establish a structured process and stick to it, ensuring that the seller's interests are protected and the transaction stays on track.
3. Manage stakeholder relationships.
During due diligence, the buyer's team is primarily looking for risks, producing red flag reports that highlight potential issues. These findings can heavily impact the relationship between all stakeholders involved. If not managed carefully, the discovery of risks can lead to mistrust and tension, jeopardising the deal. It is crucial to address these findings transparently and collaboratively, working together to find solutions and mitigate concerns.
4. Don’t lose focus on the day-to-day business operations.
The due diligence process is admin-intensive and time consuming for the seller. The focus on providing information and answering queries can divert attention from day-to-day operations, potentially impacting the business's performance. Maintaining a balance between managing the due diligence process and running the business is essential to avoid any detrimental effects on the company's value during this critical period.
Navigating M&A due diligence requires a delicate balance between attending to administrative tasks and nurturing the human connection between buyer and seller. While the former is essential for ensuring compliance and transparency, the latter is indispensable for preserving trust, alignment, and mutual understanding.
As you embark on your M&A journey, remember that behind every spreadsheet and legal document lies a human story—a story of ambition, innovation, and partnership. By keeping this narrative at the forefront of your mind and maintaining a steadfast commitment to communication, you can navigate the due diligence phase with confidence and integrity, laying the groundwork for a successful transition and a prosperous future.
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