Due Diligence: the “last great hurdle” in every business sale
A few years back we were chatting with former client, Martin Phillips, about the successful sale of his company Recommended Hotels. Martin was clear on what was good about the business sale process – researching acquirers, the excitement of deal negotiations, the exhilaration of getting the deal over the line.
But he was crystal clear on the bad bits, too. In his words: “Due Diligence was the thing I disliked the most - definitely a low point! I still remember my shock and disbelief at having to produce an anti-bribery and corruption certificate… [there was] an intense level of detail…”
There’s no doubt that commercial and legal Due Diligence can be a challenge, as the acquirer/investor and their lawyers put your business under the microscope. You can see why it’s necessary, though. When you put an offer on a house, you call the surveyor in, to give you confidence there’s no dry rot in the basement, or an insect infestation in the loft. Ditto when you buy a business. You need to be sure there are no nasty surprises hidden away in the books – or anywhere else for that matter. It’s the oldest rule in business: caveat emptor; let the buyer beware.
Let’s accept the fact that Due Diligence (commonly referred to as ‘DD’) is a vital component of every business sale. Without it, a deal simply isn’t going to happen. What can you, a business owner, do to prepare?
This was the sole focus of this week’s BCMS webinar: “Getting your house in order: a guide to Due Diligence”, now available to view free and on demand. I chaired an open discussion between M&A advisors Ken Barragan and Douglas Edmunds of the BCMS Corporate Finance team, and lawyer Leon Arnold, Corporate Partner at Freeths LLP, Oxford. Douglas defined DD as “the last great hurdle” in any business sale transaction, and the message from all three panellists was unanimous: don’t panic, start collating a range of documentation early, but don’t be surprised at the depth and level of detail acquirers will want to see.
This was reflected in our live poll, with 65% of viewers – including shareholders of privately owned businesses, doing their preliminary research - reporting that they felt “unprepared for due diligence”. DD is clearly a topic that concerns business owners. We had more questions emailed to us during the session than any of the other webinars we’ve broadcast in the past year. We’ll publish the answers to those in a forthcoming blog.
When I asked Leon to describe DD in one sentence, he had a nice turn of phrase (for a lawyer): “The preparation of coherent information.” We had some positive live feedback from viewers, saying the panellists had done a great job of making a “scary topic” seem less daunting.
And this is really the main point. Like many challenging things in life, with the right preparation, support and guidance, DD can be relatively straightforward.
The BCMS webinar “Getting your house in order: a guide to Due Diligence” is available now to view on demand, supported by downloads and other material. To view a complete list of BCMS webinars, click here