In past articles we have discussed some of the various forms of due diligence that professional buyers use prior to making an acquisition. Some of the more common forms of due diligence include IT, financial systems and reporting, HR policies and procedures, environmental, and legal. The overall goal of these various forms of due diligence are to ensure that the buyer is comfortable with all the key aspects of the target they are acquiring.
If you are negotiating a deal on your own without the help of an M&A consulting firm, you should be prepared to answer anywhere from 100 to 300 questions during a 60- to 90-day period and be ready to spend extensive time with the due diligence teams that the buyer may bring in.
Keep in mind that each of the segments of due diligence usually requires a specific area of expertise (legal and accounting, for example), which means you will most likely be dealing with several different groups within the acquiring company.
According to Axial (a leading network that works to help capital providers connect with business owners), a new form of due diligence is becoming more and more important, especially for private equity groups: values-based due diligence. Although this form of due diligence has been done informally for years, professional buyers are now making it a larger part of their formal process.
“One of the most important things we do when speaking with a business owner is to ensure that we have an understanding of their business values and the end-result of the desired transition. Our values, with regard to how the business will be run, need to align. If they do not, it can cause significant headaches and hurdles in the future. If the values are clearly conflicting, it’s a non-starter.”
Simply put, both the buyer and the seller need to be very comfortable with the current values of the target as well as where the new buyer will be taking the company philosophically in the years after the acquisition. This mutual compatibility cannot be stressed too heavily.
One of the most enjoyable parts of my job is meeting with our clients post-sale and interviewing them about the Generational Equity process. Invariably when the discussion turns to how the final suitor was chosen, compatibility often trumps everything, including – in many cases – the final price and deal structure. It is amazing how often our clients tell me that at the beginning of the process, deal value and structure were the most important issues to them. However, as the sales process narrows and sellers begin to visit with buyers, our clients begin to realize that the legacy they are leaving behind and the success of the company going forward is dependent on who the buyers are and how their belief set and philosophies align with the seller’s.
Buyers tell us the same thing, especially private equity firms that specialize in investing in lower middle-market companies (typically companies valued below $100 million). Over and over the idea that the values of the sellers, and the company they have built based on those values, need to be in line with the philosophy and goals of the acquirer. If they are not, more often than not, professional buyers will simply walk away from a deal. To quote Kevin Coughlin again:
“We would prefer to walk away from a good deal than do a deal that would fail.”
On the surface, this concept of mutually aligning the philosophy and practices of an owner as they relate to how vendors are treated, employees are led, customers are valued, and existing and new owners will interact seems quite simple. However, in practice, it can become quite complex and will often scuttle a transaction far sooner than some of the other due diligence processes mentioned above.
One major problem that we often encounter with our clients is that many do not have a stated business philosophy, mission statement, or any documentation about their strategic growth initiatives. Often our first step is not only establishing the initial value of the company but also encouraging the owner(s) to begin thinking about how he or she will articulate the philosophy and mission of the business to any potential buyers.
Of course the real goal of due diligence from a buyer’s perspective is to “test” all the facets of the organization so that the odds of post-acquisition success are higher than if no due diligence was performed. If your business is not prepared at all for due diligence, chances are good you won’t even get that far with a buyer.
Time and space do not allow us to flesh out all of the facets of due diligence. If you would like to learn more, attend a Generational Equity complimentary M&A workshop. Entitled, “How and when to exit your business for the most profit: A planned exit strategy,” our seminars are designed to help business owners protect their largest financial investment and exit under terms that are favorable to them, not the buyers.
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121