Due Diligence Success Factors
A successful due diligence is the cornerstone in closing any acquisition. It is the process designed to help the buyer establish a business value, uncover risks and opportunities, as well as evaluate the target's management.
With the right preparation, expectations, and processes, it becomes possible to successfully close deals and uncover hidden opportunities or risks. Here are a few basic suggestions to maximize your chances of a successful due diligence.
Involve advisors early
Engaging advisors prior to a "Letter of Intent" (LOI) helps increase a target's transparency and consequently speed the timeline to LOI execution. The time prior to writing an LOI is the initial data gathering period where most of the significant items are disclosed (for valuation purposes). You want to be as accurate as you can during this period to avoid future conflicts that can arise regarding acquisition price.
Entering business due diligence with reasonable expectations
The quality and availability of financial and operational data is usually diminished by size. Often, smaller businesses or privately held organizations lack audited financial statements, monthly management reports, and even customer contracts. Be aware that such gaps will exists and prepare accordingly.
Manage internal expectations
Closing the deal too often becomes the goal in itself whereas senior management loose sight of the business rational for the acquisition. Start managing internal expectations early and do not over-commit to the deal without fully considering the issues (if any) uncovered during the due diligence process.
Be prepared to go the distance
Independent of market conditions, deal success requires a certain level of patience and diligence. The temptation to rush the due diligence process is always there and almost always result in negative consequences down the road.
If you have any questions on the above material or want to know how KDS Capital can help you in your venture, feel free to call us at 602-490-0723 or toll free 800-880-0717.