How to Time the Due Diligence Phase in an M&A Deal
In theory, due diligence in the M&A process should take no longer than 60 days. When buying or selling a business, you want to close a deal as soon as possible. You should not submit or agree to a letter of intent (LOI) with a longer time frame.
In reality, however, the due diligence phase can take longer than 60 days. In most cases, the delay is the fault of the Seller, who’s often slow in getting information out. Seller needs to have all the due diligence materials prepared and ready to provide to Buyer as soon as both sides sign the LOI.
Regardless of whether you’re buying or selling, push hard for a 60-day due diligence period. Stay proactive with the process: Push and prod for information, and don’t be reluctant to pick up the phone and be a pain in someone’s side. However, other people don’t always work as fast as you’d like, so mentally prepare yourself for 90 days.
Sellers can’t be afraid to remind Buyers that due diligence is confirmatory in nature, meaning Buyer should spend the time confirming Seller’s information and not planning, creating, and combining the two entities. The Buyer should take care of post-closing activities after closing! Otherwise, due diligence will drag on longer than necessary.
The length of time for due diligence should coincide with the length of exclusivity laid out in the LOI because Buyer wants to avoid Seller being able to negotiate with other Buyers while due diligence is still under way.