Although all steps along the exit planning path are fraught with danger, none is more perilous than the 60-90 day due diligence process.
And that was before the impact of COVID-19!
Now more than ever before, it is vital that you are supported by experienced, professional advice as you enter the due diligence phase because it is at this timeframe when most deals often fall apart.
As numerous states begin to reopen and businesses start to return to normal operations, management teams remain anxious about explaining the impact of COVID-19 to their banks, investors, stakeholders and prospective buyers. Each of the business decisions made during the pandemic has a unique impact on a company’s earnings. Since companies are often valued using a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA), the consequence of mis-calculating the impact of COVID-19 could be immense.
We agree with Schoenleber. However, we have re-defined our recasting of EBITDA to EBITDAC, which takes into account the impact of the COVID crisis on earnings. In fact, we recently wrote an article about EBITDAC:
Now many of you who are reading this have likely never experienced the detailed pain of what due diligence can mean. Most due diligence checklists that buyers will submit to you will be from 200-300 questions long and will seek to examine every facet of your business in excruciating detail. Imagine the aggravation of 10 colonoscopies times another 10!
That, in the proverbial nutshell, is what due diligence can feel like. Don’t just take my word for it – listen to how a few of our clients have described it (and they had the benefit of our guidance to ease their pain):
The primary theme you hear through these wonderful real-life stories (and we once again thank each of these folks for participating in these interviews) is that due diligence is an extremely painful step and is perhaps the most important hurdle you will jump in your exit journey.
Keep in mind that each of these folks in the interviews above had the advantage of being part of the Generational Equity exit planning program and had access to the amazingly talented dealmakers that are on our team. Most would admit that getting through due diligence without an experienced deal team at your side is virtually impossible!
Schoenleber makes another really key point in his analysis of post-COVID-19 due diligence:
The seller’s preparedness, particularly if they engaged in sell-side diligence, will also be essential in the timeline of how fast things move post-LOI. Additionally, sellers engaging in sell-side diligence may also want to take more time on the front end to prepare for a sale to ensure that all bases are covered, particularly to evaluate whether some of the changes made during the pandemic were one-time or permanent.
I have bolded key parts of the quote to emphasize two key issues that again were critical even BEFORE COVID-19: Prepare in advance for key questions buyers will ask during due diligence AND make sure your documentation is accurate in relation to the impact of all recasting, especially where it relates to COVID-19.
Once more the reality is this: Now more than ever before, having experienced exit planning advice is key to your successful exit. The great news is that buyers have really ramped up their activity over the past couple of months. We expect this to continue through the end of the year and beyond.
The Generational team is ready to guide you on your exit journey no matter if your timing is 6 months out or 6-plus years away. Please call us at 972-232-1121 or visit our website, leave your contact information, and we will be in touch.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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