The message I want to share with you here is simple but critical: start your due diligence early. In fact, start it the moment you begin the acquisition process.
Conducting due diligence uncovers liabilities or hidden problems that can decide the success or failure of an acquisition. This could include issues such as past litigation, a questionable patent, or an aging piece of equipment on which production depends.
I advocate performing your research early on in the acquisition process before you spend time and energy convincing an owner to sign a letter of intent. Too many executives mistakenly begin performing due diligence only after the LOI has been signed.
Thorough research performed in the earlier stages of the acquisition process makes it far easier to complete the deal. The information about a company that you uncover also will help you determine if you want to proceed. For instance, imagine learning that the owner of your prospect company is facing criminal charges. You’d want to know that sooner than later. The same principle can apply to far less dramatic, but still significant, issues.
While early research may not identify all liabilities, you will glimpse how the company operates and how it is perceived in the marketplace. By the time you are ready to conduct a formal investigation, you will be in a position to confirm details you had discovered throughout the process.
*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com