When you’re on the sell side of a M&A transaction, your biggest role in the between LOI and closing is to gather and provide information requested for buyer diligence. Diligence is the process by which the buyer will review the assets, liabilities, and other circumstances of your company to ensure that there is support for the purchase price. In other words, the diligence process is where the seller is called on to prove out the value of the company. When things go wrong in the diligence process, the buyers may cancel the purchase or, possibly worse, demand a reduction in the purchase price.
The diligence process is intense and will require significant time and energy – probably more than you are planning on. You will be called on not only to provide all the records you regularly produce and keep, but also to search for, or possibly create, records and documents you don’t keep. Doing this while you’re trying to run a business and deal with the rest of the details of a sale is a lot. This leads to holes in a seller’s ability to produce diligence documents, risking the sale and putting downward pressure on the price. But there’s another way.
There is no reason to wait for the LOI to put together diligence documents. If you’re thinking of selling your business, whether next week or next year, you can increase your influence on the process and ensure you’re putting the best face on your business by having diligence information ready to go. Sure, every buyer is going to have a unique twist on diligence requests, but you can accurately predict 95% of any serious diligence request. Not only will getting this information together and organized in advance of formal diligence give you a quicker transaction and better value, but the exercise will give you some insight into how a buyer is looking at your company and the things you can shore up to enhance the value of your company.
Use this business sale preparation checklist to help organize your documents and keep track of the process of organizing and updating your diligence document list. Let us know if you have any questions or concerns and make sure to reach out if you’re looking to get started selling your business.
