Last updated on June 26th, 2023 at 12:48 pm
INTRODUCTION
Due diligence is a time-consuming yet essential part of mergers and acquisitions, giving the prospective buyer the chance to review information about the seller and its assets. By enforcing openness and transparency, due diligence allows both M&A buyers and sellers to lower the financial and legal risk of participating in the transaction.
In some respects, a lengthy due diligence process is a good thing: it ensures that buyers have the time to fully understand what they’re getting into. But far too often, a due diligence process that stretches on for too long can threaten and even derail an M&A transaction. The longer a deal goes on, the more likely it is that this “honeymoon” phase will wear off, and the easier it will be for the buyer to find an excuse that serves as an escape hatch from the deal.
The good news is that you can follow a few best practices to shorten your own due diligence timeline and give the transaction the greatest chance at success. Below, we’ll discuss 4 tips for speeding up the M&A due diligence process.
Ensure alignment with key stakeholders
Key stakeholders are a make-or-break component of due diligence, and getting them on board will be essential for the deal to go through. These individuals will be able to amass the people, processes, and technology you need in order to fulfil your due diligence obligations.
For example, the buyer in an M&A transaction will typically carry out due diligence themselves, along with their third-party advisors (e.g., accounting firms, law firms, and industry consultants). To promptly answer their inquiries, you should assemble a rapid response team who can provide them with the information they seek.
The key stakeholders you should engage before and during the due diligence process include:
- C-suite executives
- The M&A transaction lead
- The corporate development team (if any)
- External advisors
Gather all important company documents
The due diligence process will be much smoother if you have the documents ready ahead of time. We’ve compiled a list of commonly asked questions during due diligence, so that you can understand which documents will likely be requested.
The documents you may need during due diligence include:
- Company information (articles of incorporation, certificate of good standing, annual reports, minutes from board meetings, etc.)
- Financial statements and tax information (balance sheets, income statements, accounts receivable and payable, federal and state tax filings, etc.)
- Intellectual property (trademarks, copyrights, patents, etc.)
- Real estate deeds, leases, mortgages, etc.
- Lists of physical assets
- Sales and marketing strategies
- Permits and licenses
- Current and previous legal cases
- Insurance policies
- Employee rosters and employee benefits
Research the due diligence process
Whether this is your first M&A deal or you’re a seasoned pro, there’s still things for you to learn about the due diligence process. Some of the things you should know about before starting due diligence are:
- The prospective buyer’s company information, history, and reasons for buying.
- The steps that are involved in due diligence, from initial contacts to the final assessment of the deal.
- The typical due diligence timelines for companies of your size and industry.
Use a virtual data room
Virtual data rooms (VDRs) are secure online repositories for storing confidential and sensitive documents that need to be reviewed by an external third party. Using a VDR can help both in preparing for, and during, the due diligence process.
Some of the advantages of using a VDR during M&A due diligence are:
- A clear, consistent folder structure that’s easy for all parties to navigate and search, saving untold hours of effort.
- Permission-based user roles that can tightly control who has access to which files.
- Q&A functionality that allows interested buyers to easily and discreetly pose questions to the seller.
- Dashboards and audit trails that let sellers gauge buyers’ interest levels and act accordingly.
