Many owners dream of growing scalable businesses and have worked hard to achieve “optimal readiness.” Now there’s an offer on the table. This is the moment to rally the finance and accounting teams and round-up the typical A-Team transactional advisors, including the investment bankers, CPAs, M&A attorneys and tax specialists.
What’s at stake? Everything. What can a business owner do to improve the odds of closing? Bring in a financial due diligence specialist. As part of the sell-side advisory team, specialists can expedite buyer requests for information and present them well, while keeping internal resources focused on business operations and growth.
Time Kills All Deals: Why Expediting Buyer Requests is Critical
Private equity firms have their financially savvy professionals to manage the due diligence process, and many of those professionals have investment banking backgrounds. Similarly, strategic buyers have their CFOs or VPs of Corporate Development leading the charge. Their requests for financial information can come fast and furious, and the finance and accounting departments of privately-held businesses often don’t have the bandwidth to respond in a timely manner. In some instances, they don’t have the information and/or analyses needed to satisfy the buyer’s requirements. The process gets bogged down, which can become the kiss of death for a transaction.
The reality is an extended due diligence period reduces the chances of a deal closing. Time lapses increase the window during which something could affect a business directly and indirectly – for example, a terrorist event, natural disaster, the departure of a key employee, the loss of a big customer or the discovery of a product issue. When selling a privately-held business, many executives understand the need for speed and turn to financial consulting firms like ours. We can play a lead or supporting role, depending on the strength and bandwidth of the company’s finance team.
Bolstering the Transaction Team Bolsters Deal Momentum
The primary function of the CFO is to be part of the executive team that runs the company and supports the strategic decision making, leads the timely and accurate reporting of results, manages performance and costs, optimizes pricing and oversees budgeting and forecasting. During a transaction, CFOs also participate in management presentations with potential buyers and investors. It’s usually more than a full plate. During a transaction, focusing on core job responsibilities without distraction is critical. Buyers will identify variances from plan as a negative input to enterprise value, which can put a transaction in jeopardy.
Third-party financial due diligence professionals usually play supporting roles when the sellers’ finance teams are experienced. For example, as requests for information pour in from a buyer, we will filter them. We’ll determine if each request is reasonable or unreasonable, or question why they need that information if the request is suspect. If specific information requests will require significant production of reporting that our client doesn’t do already, our professionals will try to achieve the same outcome with more readily available information. Because we’ve been up that mountain before, we can lead the climb and offer customized support throughout the process.
In addition to expanding the bandwidth of the seller’s finance and accounting teams, there are a few added benefits of having a third-party transaction support professional handle a buyer’s requests. When a CFO or the seller’s internal staff appears to be resisting any inquiries, it can look defensive and set a negative, adversarial tone. When we question or refuse requests, the buyer sees it as us doing our job. Plus, since our sole function is to support the process, our professionals have the energy and bandwidth to turn requests around quickly, accurately, professionally and illustratively, which will likely have a halo effect on the company.
Need Guidance with Your Financial Due Diligence?
8020 Consulting provides sell-side due diligence and transaction support for a wide range of companies throughout the Greater Los Angeles area, including those without venture-capital backing. Our company’s vast experience and unique perspective facilitates smooth processes and deals getting done.
If you need help with financial due diligence, 8020 Consulting has 90+ professionals on the ground in the Greater Los Angeles area ready to move your transaction forward. Contact us to learn more.
You can also learn more about the breadth of M&A transaction services that we offer by downloading our free service sheet:
About the Author
David Lewis has been the CEO or founding partner of 5 companies, one a 600-person family business, three successful startups in the areas of executive search, consulting and financial project execution, as well as a venture-capital-backed software development firm. His last startup scaled to a 300-person consulting and executive services firm in seven and a half years. During his tenure, the firm worked with companies ranging from Fortune 500 companies to venture-backed startups. He has deep functional expertise in creation and implementation of accountability systems, planning, finance, talent acquisition and development and key executive coaching. David holds bachelor’s and master’s degrees in Economics from Georgetown University in Washington DC.