Deals are not like machines. They are much more like the human body. In both cases, a vital structure has to exist underneath everything else we can see. In the case of a deal to sell your company, it is the useful data you provide that does this job.
It is easy to think that the information a seller must provide is no more than a chore. In fact, it gives both reassurance and confidence to buyers. Intelligent, timely, disclosure of information will certainly hold the price up, possible lifting it. This is because acquisition teams must give account to their bosses. Their bosses want deals that will deliver strategic goals and, if they are Listed, support the organisation’s share price. Those who are paid to manage risk will pay you for helping them do that when you sell your business to them.
Accurate data provides the ‘bones’ of any transaction
Enough totally accurate information must change hands to make the deal work. Without that information, no trust can be built, and no money risked. In Mergers & Acquisitions this led to the ‘Data Room’. I am even old enough to remember when this was an actual room full of box files! Nowadays, most Data Rooms are virtual, but the principle remains the same. These are the bones of any transaction. (In a forthcoming Blog, we will look at the balance between appropriate disclosure and maintaining wider confidentiality.)
It is easy to see, wrongly, the process called Due Diligence as no more than a Home Buyer’s report on a company
Connectivity is what a proper Data Room is all about. Shareholders of SMEs have typically not sold a company before. Their only prior model is the sale of their home. It is easy to see the process called Due Diligence as no more than a Home Buyer’s report on a company. To most of us that means an annoying tool for purchasers to use to find fault and get the price down! That’s when we are selling of course. As home buyers, we behave very differently, often quite prepared to walk away if the Survey shows need for expensive remediation or a planning issue.
Due Diligence is the process where the skeleton of the data is covered in flesh
Due Diligence is a vital tool for the buyer. If it is not fed by accurate data provided with grace and efficiency by the vendor, no deal will happen. Due Diligence is the process where the skeleton of the data is covered in flesh. Nobody chooses their life partner because of their skeleton! Neither will a purchaser of your company. They will always want to put flesh on the bones. They buy connected businesses, not disjointed ones.
Choosing an ‘effective’ Corporate Finance firm is not purely a matter of picking good hagglers
So – only choose an advisor that can manage a good experience of both data collection and Due Diligence on a business. Talk to someone who has failed to sell a business unit, or who has had past negative experience of how poor advisors or poor acquirers handled their data. They will tell you what a crushingly awful experience it is. Choosing an ‘effective’ Corporate Finance firm is not purely a matter of picking good hagglers, good number-crunchers, people with great contacts, or whatever. Buy a team that can turn it all into a positive and compelling experience for all parties.
Next time we will look at the ‘ligaments’ of a deal – the flexible structure that connects the bones effectively – the properly negotiated Sale Purchase Agreement. Please do, in the meantime, feel free to contact us to discuss in greater detail any matter raised above.