In this Deal Note® we address the Buyer Due Diligence (“DD”) Visits. DD Visits take place after Management Presentations, once you and the buyer have signed a formal Letter of Intent (“LOI”), typically with a 60-day DD period.

During this DD period, a substantial amount of diligence will be accomplished. A portion can / will be done remotely, utilizing your M&A banker’s virtual data room (“VDR”). However, in almost all cases, there will also be numerous on-site visits to address specific issues during this 60-day period. Some of these issues are generic and can be easily expected in almost every transaction: i) engineering studies of your facilities, power supplies, and waste treatment, ii) sample inspections and counts of your inventories, and iii) review of operations and floor KPIs. Other on-site DD activities will be fact-set driven based on the unique attributes of your business, both as relates to future opportunities for growth and exposure to risks. Depending on the buyer, on-site DD can be conducted solely by buyer personnel, solely by third-party consultants/professionals, or a combination thereof.

While these DD visits may appear to be less important than the Management Presentations, they are far more important, when taken as a whole. Management Presentations are important, because they set the stage for LOI negotiations (as discussed in Deal Note® 23). Post-LOI buyer DD visits are more important because they set the stage for Purchase Agreement negotiations. 

These buyer DD visits produce one of three potential outcomes: i) they can give the buyer great confidence in their decision to acquire your business, which leads to a smooth closing, ii) they can give the buyer some concerns, which leads to contention in negotiating the Purchase Agreement, but results in an eventual successful closing, or iii) they can give the buyer substantial concerns, which either leads to a dramatic price reduction or the termination of negotiations.

We encourage you to take buyer on-site due diligence visits extremely seriously. Detailed agendas should be prepared for every visit and your team should rehearse their respective responses to each issue in the agenda, long before the buyer’s DD team arrives.

For the reasons noted above, we spend a significant portion of our time helping our clients prepare for buyer due diligence visits.

Have a great day,

Bruce Andrews
Partner