How Did Due Diligence Go for These 17 Percenters?
For this week’s blog, we’ve compiled answers from all of the 17-percenters we’ll be interviewing over the course of the next 5 weeks! Today’s question? How did your due diligence go? Do you think it added value?
When it comes to ESOPs, the independent appraiser does that due diligence. I've done a lot of M&A in my time, and I gotta tell ya I get about half of my due diligence done by the independent appraiser. So you don't lose that, it does happen, but it's not like sitting there going, “Gee, am I really going to survive the due diligence?” You're going to get paid something, you just don't know what it is until the appraisal is done, the trustee has accepted, and the corporation has had their input on it as well.
So, in a normal sale process there's a whole bunch of due diligence that you go through, but my due diligence sorta happened after the fact. I thought I had a value for the business, and then over the course of the next year the value of the business was degraded through the magic of accounting. The buy-sell agreement said 120 days or 90 days after I departed, I should get my first note payment and that didn't happen. So it was really the fall of 2012 when I said, “Okay, I guess I need an attorney to review this and start making phone calls.” Later, a friend of mine who was still at the firm called me and he said, “You didn't hear this from me, but you really ought to reread your buy-sell agreement.” And so I did, and I sat down with an attorney and that's when we got serious about, “Okay, you guys are interpreting several clauses incorrectly.”
Make no mistake. Due diligence is a necessary part of any sale process. The seller needs to understand what the buyers want. Like a home inspection that is designed to either get you to do things the buyers want or lower the price before they close the transaction, due diligence is the same. Many buyers dig as deep as they can to find ways to lower the price.
We actually had no intention of exiting when we did. We had a competitor who sold our same products that was incredibly interested in expanding into our territory. Frankly, we received an offer that was tough to turn down. The terms of the sale were: 60 day sale, no due diligence, all cash offer. It was lucky for us that our buyer was in our industry doing the same things, and knew it well enough to keep from needing to do due diligence.
Be sure to check back next week for a blog written by our guest, Tom Washington, who will be answering more questions about what business owners can expect during the exit process!
ABOUT TOM BRONSON
Tom is the founder and President of Mastery Partners, a company that helps business owners maximize business value, design exit strategy, and transition their business on their terms. Mastery utilizes proven techniques and strategies that dramatically improve business value that has been developed during Tom’s career 100 business transactions as either a business buyer or seller. As a business owner himself, he has been in your situation a hundred times, and he knows what it takes to craft the right strategy. Bronson is passionate about helping business owners and has the experience to do it. Tom has authored, “Maximize Business Value, Begin With the Exit in Mind,” his book on the importance of exit strategy as good business strategy. Tom’s passion is to equip and educate business owners so they can be in the 17% of business owners who successfully exit their businesses. Check out our resources to help you maximize business value - our website, our blogs, our YouTube channel , our podcast and our MasterYclass.
Mastery Partners, where our mission is to equip business owners to Maximize Business Value so they can transition their business on their terms. Our mission was born from the lessons we’ve learned from over 100 business transactions, which fuels our desire to share our experiences and wisdom so you can succeed.