Completing sell-side due diligence helps identify areas that have deal and value implications. It also identifies issues to address before approaching potential buyers. Concise, knowledgeable responses are required to answer key buyer questions: anything less can detract from value and from the overall transaction’s likelihood of success. Area of focus typically include understanding the quality of historical earnings, the components of both historical and projected business trends, key customer and supplier relationships, working capital and capital expenditure requirements, strength of the management team, potential synergies, and technology and intellectual property issues, among others.

Many of these areas can be addressed initially by a high-level management presentation or, occasionally, a Confidential Information Memorandum (the document that provides a detailed description of the business, future opportunities, and historical and projected performance) to educate acquirers of the benefits of owning the business. Ultimately, however, owners will need to assemble information, usually referred to as a data room that fully supports the story of historical and projected performance.

Thorough sell-side due diligence can help avoid a range of problems, including sellers’ being blindsided by unanticipated issues, potential post-closing disputes, and simply failing to close the deal. Sell-side due diligence can also help realize a faster sale process by addressing issues early and avoiding both lengthy negotiations and disputes after closing. Ultimately, the appropriate positioning of the information gathered during the sell-side due diligence process often helps owners gain a higher sale price.