For some mid-market companies and private equity firms, buying or selling a firm can be a lifetime deal, one that carries important financial risks and rewards. Comprehensive and well-executed International due diligence can make the difference between failure and success. Here are some common mistakes made in due diligence and ideas on how to protect against them.
1) Missed Opportunities
Too often, buyers depend on consistent due diligence requests without allowing for the complexities of a certain deal or the nuances of an industry vendor. For instance, if a business sells very customizable equipment that takes months or years to build, it must make working capital adjustments to take into account both customer deposits and costs in excess of invoices.
Otherwise, a product manufacturer can face new regulations that could have a major impact on inventory and shipping in the future. Not accepting the cyclical nature of a target company’s sales as well as the related inventory needs could openly affect the cooperation of the purchase price and the adjustment of working capital.
2) Pointless Provision
Buyers and sellers can spend an amazing amount of time during a deal on items that really do not matter. A crucial perceptive of the target company’s industry can stop this waste. Much Shelist just acted as legal advisor in the sale of a consulting firm, so the negotiation method was significantly hampered by needless provisions related to environmental and polluting complaints in the workplace; manufacturer and was housed in a high-rise space leased.
Though buyers should be careful to closely examine the actual risks in any deal, spinning wheels on useless provisions costs all parties valuable time and money. Click here.
3) Poor Communication
This is one of the most common problems plaguing the due diligence process. Consider a typical agreement with 4 different parties reviewing a lease: lawyer, accountant, lender and real estate agent. Too often, each party builds a silo around their own concerns, regardless of the big picture. This can lead to misunderstandings as well as mistakes. It is essential to establish clear communication channels and establish a relationship between the teams of buyers and sellers at the beginning of the process.
4) Red Flags at 11th Hour
It is important to identify and address the significant risks to the transaction as early as possible in the due diligence method. Waiting until the 11th hour to send a flare can put in serious danger or even kill an agreement, particularly the trust factor between the parties. It can excessively influence decisions on other vital issues whether the transaction costs that could have been avoided by raising the issues from the beginning should now be taken into account.
5) Leaving the Money on the Table
The process of determining the value of a company and the sale price can be qualified, particularly if the company is subject to market conditions beyond its control. It can be difficult to arrive at a fair valuation, but basically, it is about the strengths and weaknesses of the business, its talent and its potential for future profits. To help evaluate this value, gather a team of lawyers, accountants, bankers and other resources trained by third parties.
In a market where good deals are difficult to discover and the limits of compensation obligations on the sale side are as low as 10% of the purchase price, a comprehensive International due diligence process will be conducted to help ensure that the value paid is not diminished. Click here for more information: https://www.kreller.com/page/international-due-diligence