The term ‘due diligence’ refers to investigative work carried out in the course of a business sale. The buyer and their advisers undertake due diligence, raising enquiries with the seller, investigating their financial standing, ensuring contracts are as expected, and assessing the overall state of the business.
The current COVID-19 crisis highlights the need for robust due diligence audits in mergers and acquisitions. It is imperative for buyers to assess a seller’s aptitude to deal with unforeseen situations. For example, it is important to check that contracts are watertight enough to ensure the seller will not fall foul of force majeure, to understand how the supply chain would be affected in such circumstances, to verify that the company could cope if a similar crisis occurred in the future, and to ensure that the company is compliant with COVID-19 legislation.
The primary objective of due diligence, from a buyer’s perspective, is to ensure that the seller provides an accurate picture of the business to avoid unforeseen liabilities or problems later on. Though due diligence by and large benefits the buyer, it is vital for sellers to have a thorough grasp of the process for the transaction to proceed swiftly, smoothly and successfully.
Sellers must be ready to answer a buyer’s questions. There are likely to be many. Where the venture is substantial, sellers often need months – or even years – of careful preparation to position and configure their business ready for sale.
Completing honest, thorough and consistent business audits in-house enables businesses to set a positive climate ahead of sale. Experts often advise prospective sellers to avoid making drastic business changes, since what a current business owner views as small, harmless adaptations may deter a potential buyer.
In due diligence disclosure, it is vital that sellers avoid presenting nasty surprises, producing undisclosed information at a later stage of a deal. This will not only alienate potential buyers, but damage trust, creating a question mark over all of the other information previously disclosed.
In addition, ‘deal fatigue’, where sellers continually drag their feet over disclosure, could eventually cause a prospective buyer to withdraw.
Benchmark International assists sellers with the due diligence process by:
- Identifying and correcting potential issues with the seller in advance of disclosure.
- Identifying information that buyers will wish to access, drawing up a list to help the sellers prepare.
- Helping sellers collate information.
- Managing disclosure requests from the buyer’s due diligence team – a substantial undertaking in large transactions, requiring coordination between multiple parties to deliver a high volume of information. Benchmark International helps to manage onerous and duplicated requests, streamlining the disclosure process.
- Providing access to a data room, a secure digital platform where sellers can upload documents requested by a buyer.
- Should the buyer change their offer following disclosure, Benchmark International can intervene, renegotiating on the seller’s behalf.
With offices in the UK, US, Ireland and South Africa, numerous Benchmark International personnel have been recognised with prestigious industry awards. James Robinson, Associate Director of the organisation’s Manchester Transaction Team, was awarded ‘Young Accountant of the Year’ by Insider Media in 2020 as part of its North West Young Professionals Awards.
