The previous blog addressed many ways that selling your company can go south. It listed some real-life examples of what can go wrong. The very first item mentioned focused on too short an engagement period to allow for ample due diligence. The assumption is that each side—buyer and seller—has due diligence responsibilities. Usually, however, the buyer takes on the most due diligence, scouring through as much information as possible, because it is putting out the money for the purchase.
A July 2017 article by Gabriela Silvestris, a director with Equiteq, highlighted the various components of due diligence a buyer should consider; namely: legal, financial, tax-related, operational, commercial, technological, and managerial. Certainly, the buyer should be expected to spend ample time conducting deep due diligence on any purchase it plans to make, but too often the seller doesn’t allocate the same time and resources to conducting its own complete process.
Here are 20 questions that sellers in the talent development industry should ask and investigate when conducting their own due diligence investigation of potential buyers. Most of these apply in both strategic or financial buyer’s cases.
Buyer Profile
1) What is reputation of the buyer? How long has it been doing business and what has been its success rate?
2) What similar purchases have been made by the buyer and how have they worked out?
3) What are the buyer’s plans, if any, to integrate your business with others it either owns or plans to purchase?
4) What gaps in the buyer’s operations have you noticed and how will these be improved?
5) How widespread is the agreement within the buying group that this purchase is a proper one that effectively adds to its portfolio of products and services?
Financial Considerations
6) What financial arrangements is the buyer proposing for the purchase? How much will be paid up front versus over time? What type of severance agreement is it proposing in the event it is dissatisfied with your performance as well as that of your senior team?
7) What are the buyer’s expectations for the type and timing of financial reporting processes to assess your business success and growth?
8) What assurances do you have that the buyer will commit to, or at least renegotiate, your earn-outs, if it reneges on some of its support promises even in the face of its own lackluster performance and/or top leadership change?
Success Evaluation
9) What is the business model the buyer expects to apply in evaluating the future of your business, and is it compatible with how you go about your business? For example, if it wants you to become a technology-based company but you have no expertise or even interest in doing so, what impact will that have on your long-term success and your ability to realize your personal and financial goals?
10) How will it go about measuring your success, and are you comfortable with this arrangement? What growth criteria is it expecting, and can you commit to these?
11) What is its assessment of you and your colleagues’ ability to take the business forward? What management areas does it feel you need to improve, and how will it help you improve them?
12) How comfortable are you with the buyer’s go-to-market strategy for your business?
Support
13) What commitments do you have from the buyer that it will provide the necessary resources needed for you to be successful?
14) What assurances is it willing to give that your current employees can continue their service as long as the business grows successfully? What incentives is the buyer willing to make to keep your key people in the business?
15) How assured are you that the buyer will provide its expertise, experience, and resources to grow and expand your business?
16) How does the buyer plan to support your marketing and sales efforts?
17) What incentives have been put in place for the buyer and its affiliates to market and sell your offer?
Relationships
18) What assurances can you get that the key people involved from the buyer’s side will be continually engaged with your business, and even be with that company in the future?
19) What are the buyer’s expectations for reporting relationships to it?
20) How interested is the buyer in using your expertise and services in improving its own business? That is, does it see your business as a viable resource to assist its own overall growth and success? And, is it willing to pay for the time and talent you devote to it?
I am sure there are many other due diligence questions and factors that could be considered, but use this list as a starting point if you are considering such a move. And, be sure to talk with colleagues in the industry who have experienced such a purchase to get their perspective on what to look out for when selling your business.
Have you seen, or experienced yourself, any of the above due diligence items? What did you do or see done that facilitated addressing these? What due diligence questions and factors are most important to making your selling decision?
For more insight, check out The Complete Guide to Building and Growing a Talent Development Firm.