One of the most important factors to the value of a middle market aerospace defense company is the level of confidence a buyer has in the information they are being provided. In January of this year, we published Deal Note® 100, which addressed a related topic – the need for projections to be convincing. Today’s topic is slightly different. Today’s topic addresses all information, not just projections.
The analogy we often provide to clients, relating to information confidence, is that of a long-term trusted supplier with a 99.3% on time delivery rating, versus a troubled supplier with a 62.6% rating. When a trusted supplier says that your critical shipment due next month will be on time, you will probably take them at their word. Conversely, when the troubled supplier says the same thing, you will probably ask to see photos of the parts in final production and/or similar documentation to give you confidence that this critical shipment will be in the 62.6% category, and not in the 37.4% category.
The same is true in M&A. When a buyer conducts due diligence and 99.3% of what they see confirms information they were told earlier in the sale process, that gives the buyer confidence that they may not need to scrutinize additional diligence materials as intensely. Conversely, if the supporting due diligence materials contradict what you told the buyer 37.4% of the time, then you should expect the buyer to become skeptical and apply a far greater level of scrutiny throughout the remaining due diligence period. This will also impact the way the buyer approaches the negotiations of the purchase agreement (with confidence or skepticism).
As we say often, the best way to sell a middle market aerospace & defense company is to prepare thoroughly and well in advance. Especially in M&A due diligence, you want to have a 99.3% rating, not 62.6%.
Have a great day everyone,
Bill Alderman
Founding Partner
