Where do you draw the line?
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In some M&A cases, I have experienced that the buyer asks questions that indicate they are learning the target company in depth and try to figure out what operational actions they will make as an owner in order to improve operations. This through using the resources and costs of the current owner (the seller). Where do you draw the line of what information is necessary to receive during the DD process and what information the buyer should obtain when the transaction is done?
This is a delicate matter, and it might be relevant to indicate that the line isn’t clearly defined, yet, especially when reflecting such factor during the valuation (Equity to Bridge) or the quantification of it in the Risk Assessment/Management Plan.
I do not think it is possible to draw a sharp line, it is more about relationships and alignment of objectives.
A quick and dirty checklist of what is in scope and what not could help as a referencein my opinion, the line is usually set by the target company, as they control the amount of information the acquirer receives. However, the line is only as far as the acquirer pushes it be (whilst ensuring all regulatory matters are met).
There is no sharp line and agree with Dalia that likely the amount that the target wishes to share will likely drive much of the information receives. This is where having trust and a developed relationship is critical to success in getting the right amount of information and sharing.
While there isn’t a way to clearly define a line of what information is need prior to closing, there are ways to manage expectations on both sides. By providing sellers with well-prepared request lists and meeting agendas, you can set the tone for what topics will be broached.
Information requests from the buyer and information sharing are like a perennial tug of war in an M&A transaction. In my experience, the process becomes easier and smoother as trust is established between the parties. This however takes time. In the meantime it helps when the buyer communicates early on expectations and requirements from the DD process and the seller also communicates the information that will be provided and the extent/level of such information. From there on, it is like any other negotiation and the outcome of this process would not only depend on the negotiation skills of the parties/their advisors but also on the bargaining power.
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