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A private equity firm will not buy a company without performing buy-side due diligence on the acquisition target, yet some sellers do not engage in due diligence when selling a portfolio company. This is a huge mistake.
Instead of viewing the process as an option, sellers should view a sell-side diligence report as an opportunity to showcase the company and provide potential buyers with the financial and operational details to thoroughly evaluate the business and make an informed offer. As buyers are now increasingly skeptical, a sell-side due diligence report enables sellers to gain credibility, eliminate surprises, maintain control of the process, minimize disruptions and maximize value.
A consistent set of analyses for all parties will significantly reduce the burden on the seller to respond to multiple document requests and redundant queries, especially when there is more than one potential buyer. Sell-side diligence can also help identify serious buyers and weed out those who are looking for ways to renegotiate the purchase price.
The process also levels the playing field, allowing all investors to bid using validated EBITDA, reducing the likelihood that the buyer will re-trade on price before the close. Sell-side diligence also minimizes surprises: It allows issues to be presented while still maintaining the ability to control the messaging and enhance credibility, appropriating framing the conversation. Additionally, completed sell-side due diligence often leads to an expedited closing. A thorough sell-side report will address most buyers’ questions, typically reducing the depth of their own investigation …
Daniel Galante is Grant Thornton’s national managing partner of transaction advisory services. He has extensive experience serving as an adviser to companies in the United States and Europe in buy-side and sell-side transactions with private equity investors.