30 Jun The Due Diligence Process with Doug Robbins
Business broker legend Doug Robbins joined us for our recent webinar, “The Due Diligence Process with Doug Robbins.” Robbins, who founded Robbinex®, Inc in 1974, is one the world’s leading business intermediaries and business brokers with 1,000+ completed assignments and over 400 businesses sold. During the webinar, Robbins stated, “The due diligence process is more complex than all other M&A activities, combined.” Let’s dive in and explore some of his key points regarding what business brokers need to know about due diligence.
Due Diligence Cancellations
It is important to note that a massive 75% of all LOIs are cancelled or renegotiated after due diligence is completed. Further, a somewhat remarkable 67% of acquisitions fail to meet the initial objectives of a buyer. It is not an overstatement that due diligence can, and typically does, change the entire process of buying a business.
As Robbins points out, a buyer doesn’t want to be surprised when buying a business. The buyer wants to feel confident that the seller isn’t withholding negative information about the business. Not only do 75% of businesses essentially flunk due diligence, but also, it’s important to consider the complexity of the process. At Robbinex® there are 150 to 200 unique items of information requested about every business that they sell.
Legal and Human Resource Considerations
Adding to the complexity of due diligence is the fact that there are many different categories under which due diligence can fall. Everything from how much a company pays its employees to environmental issues and legal issues can send due diligence spiraling off in often unexpected directions. Legal issues and human resource issues can be a major stumbling block in the due diligence process. For example, many prospective buyers will not want to buy a business if a union is involved.
Environmental Considerations
Environmental issues can throw real “curveballs” for buyers and sellers alike during the due diligence process. Robbins gives the example of a manufacturing firm that was located next door to a wrecking yard. The concern was that there could be considerable soil contamination on the property, which would have likely made the property unsellable. The result of contamination studies was that the manufacturing business’s property was not contaminated. However, this story serves to underscore that environmental issues can always play a large, and unexpected role, in the due diligence process.
Due Diligence in Advance
The due diligence process can benefit sellers if handled correctly. Robbins notes that performing due diligence ahead of time can confer a range of benefits including reduced lawyer fees, tax savings, and even an increase in the value and price of a business.
In our next article, we will continue to explore Robbins key points on the psychology involved in due diligence. Many aspects and dimensions contribute to its overall complexity. It’s important to think about it from all angles.
