Looking for a Smooth Due Diligence Process? Here are Five Keys to Success.
It’s game day. As an owner or CFO, you are moving ahead toward the sale of your company. It’s hard to imagine a bigger event in the life of either.
This may be your first company sale, or the most important deal of your life so far. You know that as an owner or CFO, you are the Captain of the team, responsible for due diligence activities. But what should you expect and how can you be prepared to ensure that the diligence process maximizes the purchase price your company will receive from a buyer?
Here are the Five Keys to a Smooth Diligence Process:
Anyone who has been through it knows: Due Diligence is a massive endeavor. While Due Diligence activities start formally after you receive a Letter of Intent, you will be behind the eight ball if you start your preparation that late.
Not only will you be collecting and organizing all company Contracts, and other important documents including Financial and Tax, Tangible and Intangible Property, Capital, Insurance, Vendor, Customer, and HR related ones, you will be appraising them for issues and completeness, while coordinating internal and external reviews with many outside parties. To do this well, your best bet is to begin early – far before the decision has been made to sell the company. Assembling nearly every important document your Company has created – in an organized fashion – yields a better outcome when done in advance, rather than under pressure.
Be Ready For the 2nd Shift
As if we haven’t driven the point home yet, diligence is a huge undertaking. The buck stops with the selling owner or CFO on this one. And although it is time intensive, it’s only one of several important responsibilities you have during the sale process. It can feel like another full-time job. It lasts for months, and comes at a time when it is imperative for the business to continue achieving financial results under your leadership.
The key is to be prepared, selectively delegate, and utilize outside help if you can in order to alleviate the burden and stress on yourself and your team. You’ll need to take the time to provide a complete picture of your Company to prospective purchasers while minimizing disruptions to your operations. While everyone hasn’t been brought into the confidential details of your company sale, your Controller, HR Director and other trusted resources can provide valuable assistance to you here. And at CFO Alliance, we have commonly supported sellers, lessening the burden during this important time.
Herd the Cats
While your Private Equity Group, Legal Counsel and/or Investment Banker or Business Broker will provide guidance for you in the sale process, numerous people inside and outside your organization will be looking to you for timely and effective leadership. This will require you to coordinate detailed information gathering and meetings with many of these executives and advisors.
A good selling owner or CFO manages the internal and external stakeholders well, with an organized process while ensuring there is focus on the strategic importance of due diligence rather than administrative “checking the boxes” aspect of the exercise. Your efforts are essential as this work can affect the ultimate price paid for your company, the terms, as well as your post-close relationship with a new owner.
Invest in a Data Room
You may question during this process whether to use a virtual data room, believing that the cost or time involved is prohibitive. We would advise you that virtual data rooms are essential and today’s standard. Don’t short cut this decision. Utilize software specifically geared to this purpose and you will enhance and shorten the process for your team and all outsiders.
There are several providers with full-functional data room software that efficiently manages the flow of sensitive information, with strong functionality over control of access. We’ve suggested a few in our white paper, “The Seller’s Guide to Due Diligence, Deal Disclosures and Data Rooms”.
Representations and Warranties are a Key Result
Your managing of Due Diligence is only a means to an end. It provides purchasers with comprehensive information and interactions with management to support their purchase price, while painting a thorough picture of risks and opportunities of your company.
The information you gather, organize and share will make its way into important disclosures as well as representations and warranties that are essential components of the Stock Purchase Agreement to be executed. As your attorney will tell you, while the detailed nature of due diligence is often consuming, the details you provide will create expectations, obligations and potential liability. This is where you always need to keep your focus given the risk that inaccuracies and incompleteness can create for your company. You will want to “Think Like a Buyer”, since everything shared in Due Diligence ultimately affects the outcome of the deal.
The Winners Circle
When it comes to leading Due Diligence, a proactive and anticipatory mindset is critical to success. At CFO Alliance, Sales-side preparation and execution is a sweet-spot for us and our experience can provide owners, CFOs and their companies with the support you need during this process. Download our white paper, “The Seller’s Guide to Due Diligence, Deal Disclosures and Data Rooms” and contact us for more information on how you can achieve success during Due Diligence.
Get Your CFO’s Guide to Seller’s Due Diligence E-Book
While this isn’t your first rodeo, this may be your first company sale as owner or CFO or your first deal in the big leagues. Our guide will provide you with all you need to make the big plays.