The M&A Due Diligence Process
The goal of due diligence in the M&A process is for Buyer to confirm Seller’s financials, contracts, customers, and all other pertinent information. In other words, the goal is to make Buyer comfortable enough that he goes through with the deal and closes.
Buyers often have other partners (usually banks or private equity firms) who are providing some of the financing and have stricter requirements than the Buyer does. In other words, Seller may have to overcome both Buyer’s demands and Buyer’s financial partner’s demands.
Due diligence commences the moment the letter of intent (LOI) is signed, or at least it theoretically should. But frankly, many Sellers are wholly unprepared at this moment; they often don’t realize the vast amount of data they have to provide during due diligence.
All due diligence information should be ready and available for Buyer the moment both parties have signed the LOI. Because compiling due diligence information takes time, Seller should begin to gather this information when she starts marketing the business to Buyers.
How long compiling this data takes is largely contingent upon how quickly Seller works, but you should plan on one full month, assuming Seller is highly motivated and works quickly. Given the inevitable delays due to the demands of running a business, she may discover that she takes two or three months to fully compile all the due diligence info.