Often we are asked what is the best way to manage a due diligence process when acquiring a business. This period of time very critical for the transaction and has the potential to be disruption for both buyer and seller. Below I have outlined some key points to help effectively managing a due diligence process.
- Have a plan – As a management team, you need to address and identify your objective in due diligence. Is it confirmatory in nature or are you still trying to learn more about the business itself? Develop a plan with your team and identify the key areas that need to be addressed. Typical areas include: Accounting, Legal, Environmental, Marketing, Human Resources, Insurance and IT. Depending on the strength of your team, you may choose to hire outside consultants to help in your evaluation.
- Set up a timeline – Before embarking on your process, you need to set up a timeline for your process. Due diligence can typically last between 60-90 days and having key milestone dates for deliverables will be critical to a successful outcome. It will also help you manage each area of diligence more effectively.
- Involve managers from key areas of your organization – Typically we recommend that buyers involve key managers from select areas of due diligence involved in the process. This additional work is a time constraint for the managers, but our experience suggests that getting management involved early helps boost their enthusiasm for the transaction.
- Designate one person as the Project Manager – The most critical person in the process is the designated Project Manager of the process. This person is responsible for making sure the various areas of diligence are getting the necessary information and completing their reports per the established timeline. This person needs to be well organized and a good communicator as they will be working with both buyer and seller management. Prior acquisition experience is helpful but not necessary; however an inexperienced manager should work closely with the buyer’s advisor and ask questions when need.
- Keep pace with weekly calls – Lastly, we have found that weekly calls help keep the process on pace. These calls are often led by the Project Manager and should address each area of diligence. The teams performing the diligence should provide updates on where they stand on information requests, the analysis and outcomes of their work and if any red flags are arising from their work. Any red flags need to be address immediately and bought to the attention of the advisor or Project Manager.
While my points are not exhaustive in nature, keeping these points in mind will help you prepare and be better organized for undertaking the due diligence process.