• Michael Shaw

How sellers should prepare for M&A due diligence

The due diligence process is extremely important to any deal. It’s when a buyer gets to look under the hood, so to speak, and gather all the details about the company they are acquiring.

What’s important for sellers to know is that a lot of preparation should take place before actually getting to the point of due diligence, which occurs after a Letter of Intent (“LOI”) is signed.

We have found that arriving at the due diligence phase without preparing can add significant, unnecessary stress and can be the reason that a deal falls apart. It’s devastating to see a deal collapse during due diligence, so we want to ensure you are as well versed in preparing as possible.

Preparation for a sell side process typically lasts 30 to 60 days and is the foundation of a deal process. We work with clients to collect necessary due diligence information to create the marketing materials and the data room that will be used later in buyer due diligence. The information collected represents all aspects of the business and can be substantial, so maintaining good records is especially important with an M&A process.

Every buyer will want to know about the assets, customers and suppliers being acquired, the ownership structure, financial projections and more. Here is a sampling of what you’ll likely need to prepare:

  • Corporate information

  • Owners and percentage of ownership

  • Strategic planning documents

  • Business products and practices

  • Sales, volume and margin by product

  • Patents or trademarks

  • Financial

  • Annual financial statements

  • Financial projections

  • Sales and customer analysis

  • Sales by customer

  • Current backlog

  • Supplier information

  • List purchases by supplier

  • Lead time requirements

  • Inventory

  • Detailed aged inventory listing

  • Work in process schedule

  • HR information

  • Employee census

  • Employee handbook

  • Information systems

  • Hardware listing

  • Software listing

  • Facilities and environmental

  • Copies of any formal environmental reports

  • Appraisals of real estate and equipment

It’s often said that in sports a game is won during the preparation leading up to it, and the same can be said about due diligence.

An experienced M&A advisor will be helpful in guiding you through this process and avoiding the typical pitfalls of due diligence, whereas an unprepared seller can hold up a deal and cause a buyer to have cold feet. You can shorten a due diligence period by preparing successfully. Ultimately, you will be able to get your deal done as quickly and efficiently as possible.

Matthew Roberts is Vice President at Copper Run. He specializes in the business services, distribution and manufacturing sectors.

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