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M&A Due Diligence: What NOT to Do


Going through due diligence during a possible merger and acquisition can be stressful. Many important items can get overlooked until the moment that they seem absolutely necessary- causing additional stress. Avoid these mistakes with this list of what NOT to do during sell-side M&A due diligence:

Do NOT skip your own due diligence. While it's smart for businesses to perform due diligence when considering acquiring or merging with another company, it's also smart for the seller. After all, you want the transaction to be as successful as possible, right? Start by investigating the buyer, its management team, its culture, and its previous acquisitions. Doing so could help to ensure a good cultural fit as well as gauge how prepared the buyer is to take your business to the next level. For example, if you are passionate about your business's culture but find out that a buyer has a history of buying companies and implementing serious cultural changes, then you may want to find another buyer.

Do NOT skip getting organized in advance. The buyer's team will need a great deal of information from you including cash flow statements, sales and marketing data, intellectual property documents, legal documents, employee bios and HR records, contracts, litigation documents, and more. The better organized you are, the smoother this part of the process will go. If you take the time to organize your assets in advance, you will eliminate a lot of time, pressure, and money going through corporate clean up. An even better idea is to maintain your records ongoing, so that you will not have to worry when the time comes.

Do NOT share highly confidential data haphazardly. Much of the information that you must share with buyers is highly sensitive, making it important to determine: who should see it, at which point in the process, and how to securely share that information. You want to be sure you've protected your assets should the deal fall through. In order to ensure confidentiality throughout the process, get your legal team involved to make sure that each request is reasonable, appropriate, and sufficiently protected with non-disclosure agreements. While you're at it, take a "minimum necessary" approach. For example, a buyer may want assurances that one of your inventions is patented, but is it really necessary to divulge trade secrets or share detailed design drawings and spec sheets?

Do NOT fail to use due-diligence specific technology to protect your interests. M&A data rooms are readily available to protect your interests. For example, uploading due diligence documents into a data room allows you to enforce NDAs, add identifying watermarks to documents, specify who can access documents, restrict printing, mark documents as "view only," and monitor all activity in the data room with an audit log. This is helpful not only from a security standpoint, but also for gauging buyer interest. General file sharing solutions like Dropbox do not have these diligence-specific features, which prove invaluable during the M&A process.

If you're on the sell-side of a merger or acquisition, you will be under pressure during due diligence. By avoiding the mistakes above, you'll make your life that much easier.


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