The importance of performing due diligence on prospective buyers can’t be ignored if you want to get the price for your business or property, which includes intellectual property. Performing due diligence on prospective buyers lets you know whether an individual, corporation, or financial group has the financial resources, industry experience, and interest to pursue the sale through closing. Due diligence confirms the number of serious buyers but doesn’t necessarily limit motivated buyers who have hidden resources.
Due Diligence Tools and Techniques
Various tools and techniques serve as common ground in modern due diligence processes to qualify buyers. Sellers can use private equity firms, hedge funds, banking resources, government agencies, and financial investigators to investigate buyers to prevent fraud, legal challenges to the sale, the collapse of the sale because the buyer couldn’t swing financing or even seller opposition to selling a lifelong business to someone unqualified to run the business successfully. Important tools and techniques used by most sellers include:
- Specialized Software
Advanced software applications can serve as turnkey qualifying portals that handle business valuation, gather economic intelligence, assess the practicality of mergers, and facilitate advanced acquisition planning.
- LexisNexis
LexisNexis comes highly recommended for its expertise in third-party risk assessment and advanced analytics capabilities. The company also provides advanced automated due diligence services.
- Tax Due Diligence
Investigating a buyer’s status in federal, state, and local tax indebtedness often remains overlooked and is more common in due diligence investigations of sellers. However, buyer tax liabilities could definitely torpedo a sale.
- Legal Investigations
Thorough investigations of buyers include business complaints, pending lawsuits, financial hardships caused by pending divorce proceedings, and even criminal investigations of a given buyer.
- Financial Due Diligence
Investigating the buyer’s finances usually comprises the most exhaustive effort to ensure the buyer has liquid resources or sufficient credit to buy the business.
- Dun & Bradstreet
For 200 years, Dun & Bradstreet has been the go-to supplier of business and financial intelligence, business data, and analytics to make sense of raw data. The company offers third-party risk management and professional checks on vendors, suppliers, sellers, and buyers
Recommended Checks to Perform
Most business experts recommend performing the following checks on potential buyers:
- Confirming that the buyer wants the business without major changes in structure, operations, and possibly staff
- Investigating the financial strength and record of buyer closings
- Running litigation checks
- Checking reputation with industry insiders and peers
- Investigation of the buyer’s business profile and record of tax compliance
- Performing automated valuation of the business for sale
- Identifying any unusual business problems the buyer might have
- Investigating whether any legal obstacles or contractual obligations might arise during the acquisition process
Essentially, any issue that makes the seller uncomfortable or doubtful bears further investigation. Broken deals caused by buyers cost sellers thousands of dollars and usually compromise confidentiality.
Importance of MergersCorp M&A International’s Services for Due Diligence
MergersCorp M&A International offers incredible tools for performing due diligence in investigating potential buyers. These include proprietary marketing and investigating resources that help sellers reach the largest number of pre-qualified buyers. Generating a list of the most qualified buyers raises various selling possibilities, including an auction of your business or property. Auctions generate excitement about your company that increases exponentially and stimulates competitiveness among the qualified buyers in the pool.
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