Are You Ready for the Due Diligence Challenge?

Due diligence is a necessary stage in the M&A process, but most sellers would just as soon skip this stressful step if they could. Unfortunately, due diligence is only getting more onerous. In the wake of the recent economic downturn, business buyers are focused on risk like never before. And they’re using due diligence to head off negative surprises, such as excessive debt or pending litigation. Sellers in 2010, therefore, should be prepared to provide a serious prospective buyer with
everything from extensive financial records to long-term strategic plans to detailed lists of hard assets. You also should expect the due diligence period to last longer than it might have only a few years ago — potentially delaying the deal’s close.
Inevitable development Although the collapse of the financial markets in 2008 has fueled a more cautious attitude among buyers, ramped-up due diligence is a long time coming. Implementation of the Sarbanes-Oxley Act of 2002 (SOX) was a turning point, as SOX rules required public companies to assume greater responsibility for accurate financial reporting and fraud prevention — including those of the companies they acquired.

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