Hard due diligence, which is fueled by mathematics and legality, is subject to pink interpretations by zealous sellers. Soft diligence acts as a counterweight when numbers are manipulated or exaggerated. Everything in the treaty is negotiable. However, periods of care must not exceed 30 days. When a buyer requests a due diligence period of more than 30 days, this raises questions from the seller. The shorter the due diligence, the more competitive the offer. In other words, sellers want a short due diligence period. In our market, a three-week period is a concern. Less than three weeks is realistic only if the offer is in cash or if the buyer has passed something like a ready program buyer in which he has made a loan through underwriting. The point to be made is that due diligence is a really important effort and that the average transaction, even when tied to relatively small businesses, requires hundreds of hours of due diligence with the help of appropriate accounting and legal experts. A venture capitalist, represented by the writer, estimated that average due diligence cost between fifty thousand and one hundred thousand dollars… But it was in the heady days of Silicon Valley.
Depending on the size of the business or business to be acquired and the staff that has been chosen to perform the task, the cost may remain at five or ten thousand dollars, but the hours to be used are still important. Due diligence on the tax debt includes an audit of all taxes that the entity must pay and the guarantee of their proper calculation without intent to reduce taxes. Also check the status of a pending tax case with the tax authorities. Buyers are also generally very careful in implementing due diligence in assessing how the target entity fits into the buyer`s overall strategic business plan. For example, a private equity firm considering a new acquisition will ask how much the proposed target will complement the existing business portfolio. A large company, considering a possible merger agreement, is considering the ease (or difficulty) of successfully merging the target company throughout the buyer`s organization. From the buyer`s point of view: The less due diligence they have, the longer the due diligence process, the better. Other areas of due diligence research include computer networks, equity issues and/or obligations, research and development, distribution and marketing.
Achieving thorough due diligence is essential for any successful acquisition. Without full and intimate knowledge of the target company, it is impossible to make the best merger and acquisition decisions. Obviously, you want to know what you are buying and anyone stupid enough to go into a transaction without diligence is blind. But the dangers go far beyond that, but don`t understand what you`re buying. Both parties should sign a document indicating the conclusion of due diligence and reciting what was given… and not given. This document must be carefully kept in a safe place by both parties at least five years after the transaction is completed. In the end, the degree of due diligence varies from deal to deal and is based on different circumstances. The exercise of a fundamental and appropriate degree of due diligence to investigate a business or person before signing a contract must be part of a company`s internal policies.