M&A Due Diligence: Requests for Additional Information - dummies

M&A Due Diligence: Requests for Additional Information

By Bill Snow

Instead of simply responding to request after request from an M&A Buyer who is doing due diligence when selling a company, you should always provide a detailed list of due diligence items and tell the Buyer that you’ll consider adding requests on a case-by-case basis.

Due diligence should focus on confirming material facts: the numbers, the ownership, the customers, the contracts, and so on. But what falls outside “material facts” can be a complicated matter. Each deal is different, of course, and although the due diligence list provided in the appendix is a comprehensive list, a particular Buyer in a particular industry may require additional items.

Sellers should consider those requests from the Buyer. However, asking for sales and marketing materials from years ago is probably useless to the Buyer. Asking the Seller to construct a financial model or write a sales and marketing plan isn’t appropriate. Seller should not do Buyer’s work. If Buyer wants a financial model or sales and marketing plan, it’s the responsibility of Buyer to create those documents.

To help gauge whether a request is appropriate and covers material facts, Sellers should ask a simple question: “How does this information help close the deal?”

If there’s no clear answer to how the extra info helps close the deal, the request is likely busywork. Well-meaning busywork, perhaps, but busywork nonetheless. In this case, Sellers shouldn’t be afraid to challenge the Buyer’s request.

Buyers, make sure your advisors have all prior information from the offering document and any management meetings. Sellers quickly get ticked off if advisors ask for information previously provided.