The Due Diligence Phase of an Acquisition
This article is written from the perspective of a buyer of a company in order to give the seller of a company an idea of what the buyer is looking for during the due diligence phase of an acquisition. This is the point where an acquirer has come in, made the decision to buy and both parties have signed a terms sheet or letter of intent. The terms sheet is a document that binds both companies in some way, so both companies have “skin in the game”. Then the buyer can have full access to the seller’s information, and he can look at all of the details that would concern the acquisition of the company.
During this phase the buyer will begin to ask questions like the following:
- What sort of business opportunities do we want to pursue with this acquisition?
- What skills do we have that will enhance the business’s existing model?
- What products produce the greatest margins?
- How will this enhance our portfolio or our existing model?
- What liabilities will we acquire when we make the acquisition?
Once the company has established a basis of questions such as these, the questions that effect the buyer’s interests the most, then it uses those questions to drive the due diligence research. While it is more than likely that the buyer will generate a list of documentation it needs to do the due diligence, this is not always possible. In such circumstances, it is important that the seller is patient while the buyer comes back and forth with questions and requests for documentation.
After the company has done enough research into the company that it is satisfied, the terms of the acquisition may or may not be negotiated further, depending on the dirt that has been dug out during the research. Once both parties have signed on the final bottom line then the deal is closed and the business is sold.
Deal capital understands the needs of both parties. We have the professionals to mitigate the transaction and make sure that our clients are not mistreated during the process. Contact us for a free consultation on how we can help you during the process.
- Covid-19 Impact on US Private Capital Raising Activity in 2020 - May 27, 2021
- Healthcare 2021: Trends, M&A & Valuations - May 19, 2021
- 2021 Outlook on Media & Telecom M&A Transactions - May 12, 2021
