Chapter 16
Due Diligence on the Buy Side
In This Chapter
Knowing why buyers have to do due diligence
Preparing a due diligence plan
Gathering information on the target company
Researching the industry
In this chapter, we cover the preparation and study that buyers should do in advance of a deal — the flipside of Chapter 12, which discusses due diligence for sellers. In truth, both sides should do about the same preparation. However, this chapter focuses on the skills and tasks you need to make a complete valuation of a business as a buyer.
Seeing What Due Diligence Means in Practice
Due diligence is the process of thoroughly investigating a business, from the quality of its facilities to the quality of its customers, its brand identity, and most importantly, its numbers. Due diligence happens when you approach a seller and ask for permission to view the company’s operations before you make an offer for the company. The process almost certainly involves signing a confidentiality agreement.
For a prospective buyer, the process determines the following things:
The quality of the company’s overall financial reporting: When you’re actually allowed to see numbers, it pays to have expert help ensure that the data is in order. In some cases, you may want to involve a forensic accountant in the search for errant financial information. (For a look at what forensic accountants do, turn to Chapter 17.)
The current value of all the company’s assets, both tangible and intangible: Valuation ...
