Sell-Side Due Diligence Offers Sellers Many Attractive BenefitsApril 28, 2016
3 ways undertaking sell-side due diligence can improve a deal.
Sell-side due diligence is becoming essential for selling companies to ensure that their deal stays on track during negotiations. (See The Importance of Sell-Side Due Diligence .) But a seller performing due diligence also can get a number of tangible benefits that makes the process even more appealing.
There are several measurable ways in which undertaking sell-side due diligence can improve a deal. Among them are:
- Faster closing time. The earlier that a seller spots and corrects any potential issues, the easier the negotiation process will go. This could shave weeks or months off negotiations. It also could cut a seller’s deal-related expenses substantially.
- Improved valuation. A seller could use its due diligence findings to bolster its appeal and its overall valuation. For example, a seller could discover add-backs to EBITDA that could have a substantial impact on the sale price.
- Lower deal-related taxes. Having a CPA analyze a seller’s current ownership structure and tax basis could uncover opportunities to structure the deal to minimize taxes.
Knowing What Buyers Want
During sell-side due diligence, sellers also should keep in mind what a buyer’s due diligence team will primarily be looking for. If the seller ensures the timeliness and accuracy of current and future earnings projections via its own due diligence, for example, the buyer may not have to devote as much time to due diligence efforts (although the buyer will certainly still devote a substantial amount of time to the process, regardless of how much time the seller spends).
Having an easy-to-read, up-to-date due diligence report at the start of a sale can also attract more potential buyers. The seller will appear open about its financials, and buyers can jump into negotiations more quickly than if they had to do more preliminary diligence up front. This could potentially lead to a higher sale price if there are multiple bidders interested in the seller.
Building a Better Deal
Sell-side due diligence can help craft a better deal structure than in a “traditional” situation where the buyer is doing most of the work. By having a firm grasp of its business and any perceived weaknesses, a seller can create a roadmap for a deal that caters to its strengths.
Deals can get completed faster, be less costly to negotiate and possibly result in a higher sales price. To learn more about sell-side due diligence and how it can help you get a better deal when you sell your company, please contact us.