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What You Need to Know About Due Diligence

By Generational Equity

Due Diligence

Nearly every client I have the pleasure of interviewing once their deal closes will undoubtedly say the same thing with slight variations:

“I had NO idea how painful due diligence was going to be!” 

If you doubt how much of a test due diligence can prove to be as part of the exit process, here are a few clients who describe the process in their own words:

I think Brad Hennrich in the last video clip said it best: “Going into the process, both Terry (dealmaker) and Horizon Holdings (buyer) made it very clear to me that due diligence is not fun, it’s work!”

That is a common theme I encounter with nearly every client – due diligence, no matter how well the deal team prepares the owner in advance, is a time-consuming, grueling marathon. According to a recent survey conducted by Merrill Corporation, dealmakers don’t expect that to change much in the future. In fact, 59% globally expect due diligence by 2022 to take anywhere from 2-6 months:

Due Diligence Stopwatch

Source: Merrill Insight – The Future of Due Diligence

Nearly every client I have encountered post-close say that they had no idea how tough due diligence was and how vital it was to have a Generational Equity dealmaker by his or her side. Here are some additional insights from clients on that topic:

Passing the Due Diligence Test

Not to toot our own horn, but the reality is many, many deals fall apart during due diligence. Sometimes this happens because the seller simply is not prepared (or capable) of answering the 200-300 questions on a due diligence punch list. This is especially true if a business owner attempts to close a transaction without professional representation. 

There is an old saying in the M&A world: A deal isn’t really a deal until it falls apart at least twice!

Many sellers get frustrated and lose patience with all the back and forth of questions during due diligence. Again, this is especially true without the guidance of a pro by your side. 

I had one client say to me, “I almost walked away from a great deal simply because I felt that the questions being asked of me implied that I couldn’t be trusted. My dealmaker, who had closed dozens of deals, had the experience to explain to me that the questions I was being peppered with were quite standard and part of any due diligence process.”

If you have never sold a company before in your life, you will learn the hard way how tough due diligence can be, especially if you don’t hire an investment banking firm like Generational Equity to support and guide you through the process.

I think Bobby Evans in the second video clip above summed it up best: “To go through it (due diligence) without someone like Generational Equity, I can’t even imagine how that is even possible to be honest with you. I’m sure it is possible, but I think the outcome would be drastically impacted.”

It is estimated that if you take your company to market without professional guidance, you will spend up to nine months and at least 1,000 hours of your time closing the transaction. Do you have that much free time on your hands to not only do that but also run your company at the same time?

Most business owners don’t!

Fortunately, we offer complimentary exit planning conferences that are designed to help business owners learn a significant amount about the entire M&A process. There is no obligation for you to hire us. In fact, a significant number of attendees take the tremendous information we provide and find buyers on their own, but they do so with knowledge of how to do it effectively.

If you are interested in learning more about our conferences, please use the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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