Due Diligence – An Essential Part of Buying a Business in Today's Market.

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With increasing activity in the Mergers and Acquisitions Market, Roger Smith FIOD of Stirling, Business Transfer Specialists, provides a timely reminder for buyers and sellers to remember that due diligence forms an essential part of buying a business.

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The cost of a due diligence exercise can pay for itself hundreds of times over.

Essentially, due diligence provides the bridge between making an offer to acquire a business and completing the deal at an agreed price. From a buyer's perspective, when looking to acquire a business, it genuinely pays to get the right information from the right people. Roger Smith explains "any offer made for a business should be "subject to due diligence" and therefore, the cost of a due diligence exercise can pay for itself hundreds of times over, if it is found that the business is not quite as what it seems, as portrayed by the Vendor."

According to Roger Smith, "In any acquisition, the scope of investigation for a due diligence report, will vary. As an example, an engineering or manufacturing business will have a critical supply chain and facilities with specialised production techniques and processes, whilst in service based businesses, customer relationships are more likely to be key."

What information will the buyer need?

With any acquisition strategy, the key issue is to consider exactly what information the buyer needs, in order to be comfortable with the targeted business and the offer being made. Roger Smith states "Currently, there is an increasing trend towards "commercial due diligence", alongside financial, tax and all the legal enquiries."

As many acquisitions have multiple stakeholders (such as the purchaser, its bank and other equity providers), it is vital to have an agreement in place regarding the scope and timing of the due diligence required, which should all be agreed at an early stage between Vendor and Buyer. With regard to the report itself, Roger Smith recommends that the adviser concentrates on "exception reporting" focussing on the main issues of concern to the prospective purchaser. This provides greater focus where potential issues can be more easily resolved leading to a smoother transition. If Vendors can take action by anticipating the due diligence in advance, then so much the better!

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Roger Smith

Roger Smith
@StirlingBiz
since: 06/2009
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