It is imperative that during an M&A transaction thorough due diligence is conducted, not least because it helps to establish the true value of a transaction.
Due diligence is a term applied to the work acquirers undertake after signing HoTs (Heads of Terms) and falls into three main categories: commercial due diligence, financial due diligence and legal due diligence. It is a review of the seller’s company and includes looking into areas such as potential risks and liabilities, the seller’s competition, middle management and employees, financial status, intellectual property, and assets.
It is not an easy task to conduct, so here are five tips on how to ease the process:
TIP ONE: IT’S NEVER TOO EARLY TO PREPARE
An acquirer will want to see an extensive list of documentation which can include copies of contracts with suppliers, intellectual property registration, computer systems and data protection, employment contracts and pensions, and much more.
It is wise to draw up a due diligence checklist anticipating what an acquirer will want to know – most will provide this when the time comes but a checklist early on ensures that these documents are prepared and up-to-date.
Being prepared with this information, before an exit is even on the cards, is important as it can help expedite the transaction and make the company look more attractive to potential acquirers – if information can be provided quickly, an acquirer will know the transaction is being taken seriously.
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TIP TWO: USE A DATA ROOM