Sell-Side Due Diligence – What is the Process?

by | Apr 30, 2012 | PKF Texas - The Entrepreneur's Playbook®

Note: Running weekly in FromGregsHead.com, PKF Texas – Entrepreneur’s Playbook® is a continuing series of tips brought to you by Greg Price. These run Sunday evenings during the BusinessMakers Radio Show on KPRC 950AM.

Greg: This is PKF Texas and another chapter of The Entrepreneur’s Playbook. I’m Greg Price, director of consulting solutions, and I’m here again with Dan Ramey, an audit director of PKF Texas. Dan, welcome back to the Playbook.

Dan: Thank you, Greg.

Greg: So Dan, one of the areas that you work in is mergers and acquisitions within our forensics practice. Can you share what due diligence efforts you do when you’re doing one of these projects?

Dan: I can do that. We represent two sides. We frequently represent a buyer, or we represent the seller. On the seller side, let’s talk about that one first. We go in with the perspective of a buyer, and we go through, and we look at your transactions, your records, your customer base, all of that with the eye of being sold.

Greg: So is there something you’re looking for when you’re doing one of these engagements?

Dan: We’re looking for anomalies that the buyer might find as he goes through his side of due diligence. And as he’s looking for things that might not be appropriate, accounts that are long overdue, things of that nature that he would remove from the company’s balance sheets and income statements, we want to clean those up ahead of time and make it more transparent and accurate for the buyer.

Greg: So in essence, what you’re doing is representing the seller, but acting like a buyer. Is that correct?

Dan: That’s exactly right, Greg.

Greg: So what’s the benefit of that to the buyer?

Dan: The benefit is that the studies show that there’s usually a premium for companies that have an easy due diligence where they’re transparent, and they can show issues ahead of schedule to the buyer without the buyer finding them.

Greg: And that’s the value in doing one of these due diligence engagements.

Dan: Absolutely.

Greg: We’ll have you come back another time to talk about the other side of due diligence.

Dan: Sounds good.

Greg: All right, we’ll have you back to cover that. This has been another thought leader production, brought to you by PKF Texas, the Entrepreneur’s Playbook. Tune in next week for another chapter. And remember, if you’re interested in buying or selling companies, give PKF Texas a call.

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