When it comes to achieving the most value from a sale, sellers should consider undertaking preparatory sell-side due diligence prior to marketing the deal. This due diligence process can help you identify critical operational issues and concerns that you can address in advance in order to neutralize them as a negotiating point with buyers. For example, undertaking projects to improve operational efficiencies can positively affect earnings and working capital, while helping to lower back office costs.
Preparatory due diligence can also help a seller anticipate the requests and questions they might receive during the sale process so that they can respond more effectively. Sellers and their advisors can use the process to pressure test and validate forecast assumptions, identify key actions that would drive enhanced profits, and identify and address potential concerns related to synergies and standalone costs – activities that can inspire buyer confidence. Most importantly, it helps to avoid surprises in the sale process which can often impact deal valuation or timing. “The purpose of sell-side due diligence is not to avoid risks or weaknesses of the business,” says Damian Peluso, a partner in PwC’s Consulting and Deals practice, “but rather to be prepared to discuss these items and related mitigating factors with potential buyers.” In the end, addressing these issues up front will increase credibility with buyers.
Preparing a business for sale should also include planning for the subsequent negotiation of the purchase agreement – from the scope of the transaction to price adjustment mechanisms, representations and warranties. By thinking about these terms before putting a company into play, sellers can make sure they are in the best position for negotiating a deal.