Unlock the mystery of your business value long before a sale

May 1, 2017|Brad Kussow

Sell-side due diligence can positively affect your sale price, streamline process

Buy-side due diligence has long been accepted as standard practice in the M&A world, but if you’re considering selling your business, it’s worth looking at sell-side due diligence to minimize surprises and achieve potentially increased sale value.

If you’re considering selling your business, consider what foundations need to be laid before you start the sale transaction process. Having sell-side due diligence performed can be a vitally important step in the process.

Sell-side due diligence is a comprehensive assessment of your financial position to identify quality of earnings, business trends, and key assets and liabilities, as well as determine other matters that could affect the sale.

Employing sell-side due diligence early in the sale process enables you to prepare and plan for the pending sale of the company. It allows you to get a handle on your business, assess your own position and address any issues long before you have a potential buyer.

Sell-side due diligence offers you many benefits

While timing and effective negotiation certainly factor into the success of your sale, you might be surprised to see how sell-side due diligence can also positively influence your sale value. This process keeps your focus on the items that create the most value and allows you to minimize areas that could raise red flags. Consider these benefits:

  • Increase transparency. With this comes a higher level of trust and enhanced credibility with the buyer, increasing the chance you’ll keep the transaction on track.
  • Mitigate risk. Detect potential issues that could draw out the transaction process or create contention—potentially leading to lower sale values or a broken deal.
    • For buyers, sell-side due diligence provides a clear understanding of the factors that could impact the sale and decreases the chance of negative surprises. 
    • For sellers, it allows you time to correct any issues uncovered. For areas you’re not able to rectify, you can advise the buyer of these issues during initial conversations and be prepared to respond appropriately.
  • Identify cost savings and revenue enhancement. Knowing the concerns that may come to light also allows you the opportunity to improve upon weaker areas of your business, including identifying adjustments that can positively affect EBITDA or identifying normalization adjustments and preparing the related support. An EBITDA adjustment of $100,000 can increase purchase price by a half-million dollars, assuming a modest multiple of 5.
  • Streamline the purchase process. Allow your investment bankers and management to focus on the overall process. A professional providing sell-side due diligence services also brings experience, resources and guidance if a finance team has not gone through the sales process before.
  • Gain a thorough understanding of your own financial position and produce accurate financial information.
  • Uncover positive findings and know your strengths. Take a deep look at all angles of your company, not only from a financial perspective, but also in terms of your cultural considerations, operations and technology. This allows you to make a more powerful business case and then market your business appropriately.

The results? You’re prepared for the process, can offer a different perspective and are setting yourself up for a higher sale value—prior to being scrutinized by potential buyers.

Qualified advisors to help guide the due diligence process

Being too close to the day-to-day operations may cloud perceptions of any possible concerns that could bubble up during the transaction process. Having an outside professional perform due diligence services not only lends objectivity to the process, but also allows your internal team to continue focusing on running the business.

A professional business advisor who understands the sale structure and related tax implications can go beyond due diligence services to act as an extension of your finance team during the transaction process, providing a number of services:

  • Decipher potential red flags and then frame them appropriately
  • Prepare for identification of networking capital targets and work through post-closing adjustments
  • Assist in preparation of forecasts and projections, including validating, developing and defending assumptions
  • Identify and compile documents for data room
  • Work with advisors in drafting accounting-related provisions, disclosure schedules and other documents needed for the purchase agreement
  • Assist in analyzing post-closing adjustments and determination of balance sheet

For more information about how due diligence can increase your odds for a successful transaction, contact Brad Kussow, CPA, CMA, at 414-465-5526 or brad.kussow@schencksc.com. Schenck also provides the full scope of services needed when considering a transition, from tax specialists and operations consultants to investment banking professionals to human resources consultants.

Bradley Kussow, CPA, CMA, CM&AA, is a shareholder and leader of Schenck’s Transaction Advisory Services practice. He has nearly 20 years of public accounting, corporate finance, investment banking and consulting experience. He specializes in planning and executing buy-side and sell-side due diligence projects, financial modeling, valuation and working capital analysis.