DUE DILIGENCE: SELL-SIDE

Due Diligence

Practical ideas for an effective sale

Buyers require an increasingly in-depth analysis on potential acquisitions and providing them with a ready-made and detailed sell-side due diligence report could ensure that a long-winded transaction is avoided, giving you the chance to address any issues before they arise.

You’ll need to think about the accuracy of financial statements; tax & payroll; operational structure and risks; inventory; legal & regulatory compliance and more… It’s all the preparation, so, the more you can prepare now for the possibility of an acquisition, the more value you are adding to the company today.

Below are a few steps you can take to prepare your business from a due diligence point of view.

Have a Due Diligence Checklist

The main reason you might need a due diligence checklist is to make sure you don’t overlook anything when it comes to an acquisition; a buyer will want to dig into everything, which is rather a lot to have to think about.

A sell-side due diligence checklist can ensure that a company’s assets, liabilities, contracts, benefits etc. are up-to-date and organised. This broad initial step will set the stage for a more in-depth and targeted due diligence investigation, but a checklist can serve as a preliminary guide to mitigate risk and gain a deeper insight into your operations. Don’t wait for a buyer to provide a checklist, there are a few available online to get you started.

Avoid Poor Accounting Practices

Accounting should play a crucial role in any merger or acquisition that wants to be compliant and successful. Effective accounting is the bedrock to a successful negotiation and ensures the company is ready to sell in the first place.

In general, all of the accounting should be clean, straightforward and compliant, and facilitate a streamlined process rather than be a hindrance by thoroughly investigating and analysing the company’s assets, liabilities and historic earnings and providing answers to numerous questions throughout the process as well as creating key documents.

To avoid costly mistakes, seasoned accountants who have had plenty of experience in merger and acquisition transactions must be considered to ensure that their company’s financial statements accurately reflect the new purchase, or business combination.

Hire a Qualified Team

Ensuring you have a focused team of experts capable of both adapting as new information becomes available during the due diligence process, while executing a merger or acquisition in line with the company’s core values, will most certainly orchestrate a successful merger or acquisition.

But what does this team look like? Some key roles that should be included:

  • M&A Advisor
  • Investment banker
  • Legal counsel
  • Accountants

Mergers and acquisitions take a huge amount of planning and it’s a great idea to create a team that consists of experts in various areas to ensure that the business thrives before, during, and after the sale. You should lean on their expertise to make sure that all aspects are covered as an M&A deal cannot, and should not be performed by one person alone.

Conclusion

Preparing for sell-side due diligence helps increase the probability that the sale of a business will be successful. Performed correctly, and with a great set of processes and systems, as well as an “A” Team, you’ll uncover opportunities to enhance your company’s value before a sale while gaining early, vital insights which can help mitigate risks and disappointing results.

Venture Corporate Finance is a middle-market M&A advisory firm for clients planning to sell their businesses, raise capital, restructure, or grow with acquisitions. We provide independent advice and bespoke transaction solutions to meet their specific objectives.

For more information on corporate finance and M&A services, contact Venture Corporate Finance.