You just got your letter of intent signed, and the wheels are in motion to move your transaction to closing, but important decisions still need to be made. In particular, you need to pick your transaction team. This team will include company personnel, legal professionals, accounting professionals and insurance professionals, to name a few possibilities. When deciding who to use on your team, it is important to consider who will customize their services to your particular transaction.
Financial diligence should not be based on one standardized checklist or PowerPoint presentation book. Each transaction needs to stand on its own. Upfront planning is the key to delivering effective due diligence. This process should include a detailed review of available information, including financial statements, confidential information memoranda and available public information. In addition, specific risks should be vetted, so the focus is on areas that will ultimately have an impact on the transaction. At this point, a detailed specific financial due diligence plan can be developed and executed.
The one-size-fits-all method may capture all the relevant risks, but does so by carpet bombing instead of laser targeting. This can put stress on the target and ultimately slow down the transaction. Designing a specific approach allows for sufficient effort focused on risk areas. For example, if the target is a manufacturer, risks may involve raw material prices, costing methods and obsolescence. Upfront planning may identify that raw material costs are a large risk to future earnings and costing is not. Therefore, little time is wasted on a non-value-added area. That being said, it is important to adapt on the go to new information. Recalibrating will also bring the most value to the process.
Planning and open communication will always yield the best results with the least amount of stress.
Please contact Joel Rosenthal, Shareholder, for information on how we can assist you with your due diligence needs.
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