Pre Due Diligence – Prepare for future acquisitions

Blog post about pre due diligence written by: Sales Manager/ Virtual Data Room, Admincontrol Finland: Erik Alopaeus

Every business transaction is different. Some are quick and easy while others are more complicated. I have learnt a few things from speaking to over one hundred M & A professionals throughout this year; The better you prepare for a future acquisition, the better outcome you will have.

I have come across plenty of situations where the preparation for the due diligence is done in a hurry. It is normal to upload thousands of documents in just a few days to a software tool like a data room. After the upload is done, the seller usually invites potential buyers to the data room. The potential buyer(s) will have access to the data room to learn about and examine the company up for sale. However, sometimes the potential buyer faces data rooms, that are poorly populated and they will not find the information they are after. This could potentially prolong the due diligence process, or even worse, the buyer(s) could completely lose interest.

Here’s 4 key take aways I’ve learned from talking to hundreds of M&A-professionals:

Keep all your data one place with pre due diligence

Gather all your documents related to a transaction in a safe and secure place. Avoid unnecessary email conversations and use platforms like Admincontrol`s data room for pre-Due Diligence as well as the actual Due Diligence. Remember, it might be thousands of documents, so gathering all the data will be very time consuming. 

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1. Use an External Advisor

Although a transaction may seem straight forward, you should always use external help. External Advisors are specialists in the M & A process and they will assist your company when it comes to finance, taxation or legal matters. Experienced Advisors may also be able to bring additional potential buyers into the game, which makes the process even quicker.

2. Upload the index and Q & A list in advance

You can ask your Advisor for a list of indexes. Companies that do a lot of acquisitions, make decisions based on certain pre-defined matters. Therefore, it is a good idea to ask an Advisor to prepare 100 questions that the potential buyer typically will raise.  These questions will help you prepare for the acquisition.

3. Keep a clear structure

In the acquisition, buyers tend to use a lot of time to study the company or business they are interested in. It is important and polite to the buyers, that all the documents are well-organized in the data room. The buyers expect a transparent and easy merger process. Efficiency is crucial and so is confidence!

4. Start preparing today!

If you follow these steps, the potential buyer(s) is more likely to look at your company as a very professional and attractive target. In a well-prepared transaction, the enterprise value and return on investment is typically higher. My final and best advice: If you are planning to sell a company over the next few years:

Start preparing with pre due diligence for the deal RIGHT NOW and avoid any hesitation or surprises.