Many business owners and management teams are astounded by the laundry list of legal, financial, environmental, and other miscellaneous requests that are submitted by buyers during due diligence. Unfortunately for business owners, the teeth pulling won’t stop simply because most of us will be working from home for the foreseeable future. While there may be a few hurdles created by the stay-at-home orders, advancing a transaction and conducting remote due diligence is a highly viable option for both sellers and buyers.
Financial and Legal Due Diligence
Technology used for financial and legal due diligence has come a long way. Data rooms in the pre-internet M&A era were, quite literally, rooms full of thousands of files of the seller’s data arranged for prospective buyers, making in-person meetings and interactions necessary. Today, virtual data rooms make file sharing and information exchange very simple, fast, and efficient. Third-party accounting firms and the buyer’s legal counsel can access all the information they need without face-to-face interaction. The seller’s management and accounting teams will need to be heavily involved in responding to data requests and answering questions at this stage, but this can be done over the phone and by email. Zoom meetings, google hangouts, and other video conferencing tools allow for screen sharing, which is nearly as efficient as in-person meetings when discussing financial information.
These tools have been changing the due diligence process for the last several years as the M&A community has realized that face-to-face interaction is not necessary to satisfy financial and legal matters. Rather than holding all-day meetings, diligence teams may break up the workload into smaller, focused meetings that allow sellers less interruption in their day-to-day activities.
Operations and Environmental Due Diligence
Operational and environmental due diligence is more challenging to manage remotely, particularly for asset-intensive businesses or businesses with potential environmental liabilities. Buyers like to tour the facility and see the equipment that will be included in the transaction before advancing to later stages of diligence. If the seller is at risk for any contamination liabilities, an on-site environmental assessment will likely be required to examine the inventory of hazardous substances stored or used on site, potential soil contamination, and other standard procedures. There are some workarounds that can be implemented such as virtual facility tours and inspections, but ultimately the buyer or third parties conducting diligence will likely need to physically inspect the facility.
While some buyers may be wary of signing up an LOI without physically touring a facility or meeting with management in-person, there are many that have continued to stay aggressive in today’s climate and close transactions. Technology has made it easier than ever to manage the due diligence process from a home office. As a seller, it’s important to have a talented investment banking team on your side to quarterback this process and keep things moving.