Although all steps along the exit planning path are fraught with danger, none is more perilous than the 60-90 day due diligence process.
And that was before the impact of COVID-19!
Now more than ever before, it is vital that you are supported by experienced, professional advice as you enter the due diligence phase because it is at this timeframe when most deals often fall apart.
As numerous states begin to reopen and businesses start to return to normal operations, management teams remain anxious about explaining the impact of COVID-19 to their banks, investors, stakeholders and prospective buyers. Each of the business decisions made during the pandemic has a unique impact on a company’s earnings. Since companies are often valued using a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA), the consequence of mis-calculating the impact of COVID-19 could be immense.
We agree with Schoenleber. However, we have re-defined our recasting of EBITDA to EBITDAC, which takes into account the impact of the COVID crisis on earnings. In fact, we recently wrote an article about EBITDAC:
Now many of you who are reading this have likely never experienced the detailed pain of what due diligence can mean. Most due diligence checklists that buyers will submit to you will be from 200-300 questions long and will seek to examine every facet of your business in excruciating detail. Imagine the aggravation of 10 colonoscopies times another 10!
That, in the proverbial nutshell, is what due diligence can feel like. Don’t just take my word for it – listen to how a few of our clients have described it (and they had the benefit of our guidance to ease their pain):
The primary theme you hear through these wonderful real-life stories (and we once again thank each of these folks for participating in these interviews) is that due diligence is an extremely painful step and is perhaps the most important hurdle you will jump in your exit journey.
Keep in mind that each of these folks in the interviews above had the advantage of being part of the Generational Equity exit planning program and had access to the amazingly talented dealmakers that are on our team. Most would admit that getting through due diligence without an experienced deal team at your side is virtually impossible!
Schoenleber makes another really key point in his analysis of post-COVID-19 due diligence:
The seller’s preparedness, particularly if they engaged in sell-side diligence, will also be essential in the timeline of how fast things move post-LOI. Additionally, sellers engaging in sell-side diligence may also want to take more time on the front end to prepare for a sale to ensure that all bases are covered, particularly to evaluate whether some of the changes made during the pandemic were one-time or permanent.
I have bolded key parts of the quote to emphasize two key issues that again were critical even BEFORE COVID-19: Prepare in advance for key questions buyers will ask during due diligence AND make sure your documentation is accurate in relation to the impact of all recasting, especially where it relates to COVID-19.
Once more the reality is this: Now more than ever before, having experienced exit planning advice is key to your successful exit. The great news is that buyers have really ramped up their activity over the past couple of months. We expect this to continue through the end of the year and beyond.
The Generational team is ready to guide you on your exit journey no matter if your timing is 6 months out or 6-plus years away. Please call us at 972-232-1121 or visit our website, leave your contact information, and we will be in touch.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2020 Generational Equity, LLC All Rights Reserved
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Group’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Group to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Group is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.