Critical Pre-Sale Due Diligence - Maximize Business Sale Price and Terms

Due Diligence preparation is often overlooked, yet is critical to maximizing sale price and ensuring a smooth transaction. Now more than ever.

Credit markets are tight and despite a recent rebound, Mergers and Acquisitions activity is still down.

Buyers are targeting acquisitions - but now with a heightened degree of scrutiny.

Even if a buyer has plentiful cash available, they are still likely to leverage the acquisition to increase their percentage returns.

Leverage brings lenders to the table. Even if lenders are familiar with the deal, they need to provide detailed support for their loan.

With the tighter credit environment, tougher reporting requirements and more stringent data and due diligence requirements, you need to do more today to ensure a smooth sale process.

A report on your company's financial results from your accountant or even an independent auditor is not sufficient.

Your best option is to conduct in-depth analysis of your Company by an independent due diligence expert to identify areas that will have a direct impact on the sale price.

Firstly, a buyer needs a thorough review of your financial accounts and reported financials with supporting detail, consolidated data as well as data by location, product categories and other relevant categories for historical and forecasted periods.

They also need in depth analysis and a report on the quality of earnings, accounting systems, methodologies and compliance with or departures from GAAP. They need to see normalized sales, gross margin, and operating expenses, as well as feedback regarding compliance with debt instruments. They need analysis on AR, Inventory, CAPEX, working capital, debt and coverage, and profitability.

Buyers will also require due diligence on liabilities, operations, tax compliance, legal issues, reputation, industry analysis and forecasts, competition, customers, suppliers, people, PP&E, integration risks, environmental, health, internal controls, lease, zoning and permits, in addition to other business issues.

CLICK HERE for ClearRidge Capital's website section with expanded information on due diligence requirements.

This is not something that is easy to compile and typically requires strong financial modeling skills, trained analytical skills and specific acquisition due diligence and corporate finance experience.

Whether it is a midsized privately held company or a single division of a large public company, it is rare that this data is tracked routinely by the lean accounting staff that is focused on daily operations and normal reporting needs.

Take Action to Better Position your Company

This doesn't need to be an obstacle to a successful sale, but it does take planning and clear forethought. Most sellers proceed too quickly at the start of the process and skip critical steps, only to suffer later on while attempting to close the deal.

Unfortunately for many sellers, starting later in the sale process can reduce the sale price or cause the deal to fall apart.

Your best solution is to prepare a thorough due-diligence report before talking to buyers. Proactively offering answers to their likely information requests not only speeds up the process, but also inspires confidence in the acquisition opportunity.

If you want to secure the highest price and the best terms, you are going to need at least two buyers competing in a confidential auction process.

By providing a due diligence report in advance, you are saving time and also providing potential buyers and their lenders with sufficient information for them to submit an LOI (purchase offer) and close the deal in a timely manner.

Professional preparation also enhances the image of your company.

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Maximizing Enterprise Value as a business, financial and strategic advisor to midsized US companies.

ClearRidge’s Directors have completed over 200 M and A transactions, provided restructuring advice and secured new and replacement debt and equity for companies across the US and Canada.

Mergers and Acquisitions includes buying, selling, merging and valuing midsize companies.

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