One of the most time consuming and critical steps in the sale of your company will be the due diligence process. If you are prepared in advance, the chances of you closing a deal with an optimal buyer go up dramatically. However, if you are unprepared and have difficulty responding to the various requests presented to you by the buyers, their confidence in you and your company will diminish, which could lead to them walking away.
The official definition of due diligence is:
The assessment of the benefits and the liabilities of a proposed acquisition by inquiring into all relevant aspects of the past, present, and predictable future of the business to be purchased. Due diligence occurs subsequent to the Letter of Intent (LOI).
Since it literally is the step where most deals tend to fall apart, we thought it might be helpful to write a series of articles on the due diligence process, creating a virtual checklist for you to use if you are forced to find a buyer without professional representation.
Based on our experience, one of the areas that buyers are really honing in on now during due diligence is the target’s information technology systems and procedures. Obviously in today’s environment, nearly every business, no matter what the industry, is now closely tied to the IT system they are using. Buyers more than ever want to ensure that post-acquisition, the IT systems are operating optimally and that the procedures are documented and followed.
According to a recent article in Mergers & Acquisitions, if any of the following features are true for your company, then you need to be prepared to provide full documentation of your IT systems during due diligence:
Again, if any of these scenarios are true of your company, you need to be proactive and take steps today to adequately prepare your IT system and staff for scrutiny.
At a minimum we have found it vital that your accounting system be able to produce a full range of financial statements quickly and accurately. Due diligence teams will typically spend significant time at your facility, asking for numerous pieces of financial information as they analyze your business. You need to be able to provide them with this data when requested. Delays or error-filled reports will not help them have confidence in acquiring your company.
In addition, we have found that it is vital to have systems and procedures fully documented BEFORE the due diligence IT team arrives. All too often we find ourselves working with business owners that have no idea if their IT staff has documented anything, much less the crucial things like system backups and software security.
Although there are many steps we will be discussing in this series on due diligence, from what we are hearing from buyers, IT is now one of the most critical. Again, take a look at the list above, and if any of these apply to you, spend some time documenting your IT processes before you sign a letter of intent to ensure that buyers will have confidence in your IT system.
If you have found this discussion intriguing, and you are considering the eventual sale of your company, we invite you to attend one of our free, no-obligation M&A workshops. While there you will learn about how and when to exit your business (and how to do so with an optimal buyer). Due diligence will also be covered, and you will have the opportunity to have a private conversation with one of our M&A professionals about any concerns you have regarding your IT due diligence specifically and/or due diligence in general.
In summary, if you are going to approach buyers on your own, be sure to be prepared for full due diligence. Do your own audit, especially of your IT systems and procedures to determine if your company will be able to stand up to the scrutiny of a buyer. You might be surprised what you learn if you take the time to do so.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2012 Generational Equity, LLC All Rights Reserved
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.
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
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
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
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
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.
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
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
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
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
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
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
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
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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.
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 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
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
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.
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
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