Sell-Side M&A/Vendor Due Diligence

An M&A due diligence checklist is a certain number of details or documents that prospective buyers’ review. This helps the buyer examine all relevant materials of the target company before finalizing on the decision to buy. A detailed checklist contains several hundred items assigned to specific people on the due diligence team but a range of topics that can be covered is given below:

• Building a team
• An accurate business valuation
• Financial and tax documents
• Legal/liability issues
• Intellectual property
• Operations
• Customer base
• Organizational charts
• Human resources
• Marketing 
• Information Technology including a descriptions of all financial and operational systems (including payroll)

Due diligence is equally important to both buyers and sellers and they come with specific benefits and areas of concern.

Buy-Side due diligence

When considering a potential acquisition, the goal is two-fold: it is important to find a company that fits in well with the overall company objective and one’s needs at the right price. This is where a rigorous due diligence process comes into play.

Objective due diligence provides a factual assessment of important areas that one must take into consideration before moving forward with the transaction. First, it will help validate a company’s finances. Next, it gives an insider’s look at the strategic and operational characteristics of the company that may make the deal more attractive or put it out of the running.

In-Depth Financial Analysis

Numbers play heavily in any M&A deal. Buy-side due diligence will help the buyer assess things such as the quality of earnings and cash flow, assets and liabilities, and working capital.

Post the purchase, the numbers acquired through the due diligence process can help the buyer better understand what factors will be important to ensure growth and success in the future. With these numbers in hand, the buyer will be able to make better informed decisions as they move forward.

Strategic and Operational Considerations

On its face, a company may seem like a natural addition to the organization’s portfolio but due diligence will help ensure that an acquisition is truly a good fit. It also helps reveal how operational costs and decisions are affecting the bottom line and reveals potential weaknesses in the current personnel structure or company systems. Having a complete understanding of the financial as well as strategic and operational aspects of the target will help ensure a successful transaction and a valuable investment.

Sell-Side due diligence

As a seller, the goal is also two-fold: secure a successful transaction and close it at the highest price possible. Taking time to perform due diligence beforehand will help give you a realistic valuation for your company before you begin the search for a buyer. It will also provide accurate information for you to present to potential buyers.  Finally, the process enables the Management team to be proactive with respect to the presentation of valuation issues.