Overview: Sell-Side Due Diligence

At the start of any relationship, first impressions matter. This is especially true in the early stages of a merger, acquisition or sale, when establishing trust and credibility between parties is paramount to success.


In recent years, sell-side due diligence has become a valuable tool for executives preparing a business for sale, largely because it helps them proactively frame how the company is presented to prospective buyers. However, maximizing that opportunity requires both time and collaboration with a third-party resource that has substantial experience conducting financial due diligence.


Some key advantages of sell-side due diligence include:


Verifying accuracy of information. After a qualified provider has been retained, the due diligence process begins by gathering all relevant financial and operational details, which are then thoroughly evaluated before discussions with prospective buyers. This process provides reassurance that all data has been double checked for accuracy. If previously unknown (or unresolved) issues are discovered, a sell-side due diligence process allows those concerns to be addressed before any negotiations take place.


Identifying adjustments that may boost EBITDA. A sell-side due diligence analysis can review historical financial performance, validate (or challenge) assumptions and often uncover positive adjustments that can improve earnings before interest, taxes, depreciation and amortization. This analysis provides an objective, transparent view of earnings, which can help strengthen the case for the company’s purchase price and reduce the likelihood of buyer renegotiations after a letter of intent has been signed.


Heightening buyer competition. When a seller invests in a third-party due diligence process to produce an objective quality of earnings report, it can help improve perceptions of the company’s current and future value among prospective buyers. As a result, business owners frequently receive higher-quality bids that often match or exceed the stated sale price, which helps offset the cost of due diligence work. Similarly, a well-designed due diligence process can also help company leaders optimize deal structure for a merger, acquisition or outright sale, thus maximizing after-tax proceeds from the transaction.


Maintaining focus on goals and daily operations. When executives choose to use in-house resources to tackle due diligence work, they frequently underestimate the level of data gathering, analysis and reporting required to deliver credible reports and deal recommendations. By retaining a qualified third-party due diligence provider, senior management can minimize disruptions to day-to-day operations while also staying focused on achieving key targets that can boost the company’s market value.


Please contact us for more information on due diligence processes or other business accounting issues.


September 12, 2017