Due diligence is a vital process when it comes to buying a business and should not be taken lightly. It allows you to understand the seller, the history of their company, and what acquiring it will mean for you and your business. Considering how complex and time-consuming these transactions are, it can be easy to lose sight of the importance of smooth due diligence and investing in the right people and tools to have on your side as you progress through the process. Below are a few of the common mistakes that buyers make when acquiring a business and the simplest ways to avoid them.
Insufficient due diligence
Taking the time to review a seller’s data with regards to their company is a vital step in the process of acquisitions. Knowing about their current finances and if they have any outstanding debt or pending litigation will better prepare you to understand what you are in for when a deal finally closes. This means that, while the due diligence can take months, even years, it’s important not to rush it in order to ensure that all necessary information has been disclosed in a secure Firmex virtual data room and reviewed so that you can make an informed decision about buying the company.
You might have had a closing deadline in mind when you first began the deal, but rushing through due diligence will only be detrimental to your understanding of the business you are about to buy and what its in store for you once you do. Give yourself the necessary amount of time to review the seller’s information in detail so that you aren’t shocked by an unexpected surprise with regards to their business later on down the line.
Wasting time on exhaustive due diligence
On the other hand, wasting your time on too much due diligence can significantly delay your deal from closing and cost you a fair amount of money in the process. It’s understandable that you want to know everything about the company you are preparing to buy, however, spending an unnecessary amount of time on excessive due diligence can be misinterpreted by the seller as an aggressive tactic and might affect their decision to close the deal at all. The last thing you want to do while in the midst of a complex and time-consuming transaction is alienate the seller and prompt them to reconsider you as a buyer. Review the pertinent information that a seller has disclosed to the best of your abilities while still staying within the timeframe of the projected deadline.
Using the wrong data storage service
As mentioned above, the best tactic you can implement in order to avoid bad due diligence and decipher whether a seller is accountable is ensuring that both parties are collaborating within a secure document sharing platform, such as a virtual data room. Recognizing when the appropriate software is used to facilitate smooth due diligence will highlight a seller’s intentions and show you that they are prepared to invest in good software to make the process of the deal much easier for everyone involved. Be cautious of bloated and difficult to navigate interfaces; they could be a sign that a seller is not prepared to invest accordingly for the deal and can drastically affect how easy it is for them to disclose all the necessary information about their business and for you to review it.
Not having the right advisory team on your side
It’s important to recognize when you need assistance during the due diligence phase of M&Aand to not shy away from asking for help. With that being said, a common mistake is that buyers just don’t hire the right people for their team to help them through the process and that can lead to a lot more confusion and time wasted in the long run. Be sure to recognize if you are working with a broker or advisory firm that is also working for the seller, leading to a conflict of interest and muddled due diligence that can cause a plethora of complications in the future of the deal.