Appropriate duration of Due Diligence
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What would be the appropriate duration (weeks/months) to evaluate a company (financials, synergies, culture, etc.) and how could we shorten it/make it more efficient?
It depends largely on the size of the target and whether it is a start-up or long term player in the market. If the target is start-up, there is probably less data to analyse and hence the DD is usually short (the protection is then achieved through relevant provisions in the asset/share purchase agreement). On the other hand, if the company is established player, then there is more info available and to be analysed. Also, the size and importance of the deal may influence the length of DD. It can range from couple of days up to several weeks. I think it is difficult to tell the exact time. The key obviously is the preparation of the buyer (what info it requires) and quality of input provided by target.
It is also to keep in mind if the target is a public company. I was recently on a transaction which the target was a public company and we had to undertake the due diligence within 2 weeks. This is due to the sensitive nature of the information that we received.
I think it is important to take note of the size of the acquisition. A reasonably proficient DD should take at least 1 month, and I think that is is a reasonable one.
As others have indicated, it really depends on the size of the company overall, in my experience. For example, I was doing some DD on a small, $5M manufacturer, due diligence really didn’t take too long, a few weeks. However, a larger $80M company took six weeks!
It depends on the size of Company and Type of deal. For example if a company is sold by a liquidator, in such cases Company is given only 2 weeks’ time to access the data in data center and submit bid.
I would agree with everyone’s comments here and I would add that it also depends on the resources assigned to work on the DD and the level of dedication to the process. If resources that are assigned to either review or provide documents from both sides have their day job to worry about as well in the time it takes to execute the DD you actually have to also add the waiting time until the other party responds if they are not able to react immediately to queries due to other tasks and the back and forth is not real time and efficient. In such cases I’ve seen DD drag for months on end.
The appropriate duration to evaluate a company can vary depending on its complexity, size, and industry, but a typical timeframe ranges from 8 to 12 weeks for the evaluation. To make it shorter and make it more efficient, streamline processes, leverage technology for data analysis, and involve experienced teams and advisors.
As underlined in previous answers, it obviously depends on the size of the business and how close in model/market the target company is from the buying company.
The quicker the DD, the higher the risks for the buyer to discover bad surprises but the slower the DD, the higher the risk it fails or creates side risks. Obviously a good compromise should be sought after and 7-8 weeks might be the maximum timeline.
One way I see to make it more efficient is to involve dedicated resources (sounds obvious but not always the case) and not people doing that on top of their daily tasks in their respective fields (HR, Tax, legal, etc…)Curious how those in this thread might feel about setting contractual milestones to help DD move along promptly (and accurately). How would the contract terms be positioned and could monetary targets be set so there are incentives. As a Project Manager, I’m always thinking about finding the carrot (or stick) to keep things moving.
As was said previously deal size and the situation of the target is important. Duration also depends on the availability of a Vendor Due Diligence which can shorten the duration and cost of DD as it can focus the exercise on validation and identifying key red flags.
In my experience, full scale due diligence tool from 2 to 6 weeks depending on the size and also of the readiness of the seller to provide answers / materials. Some inefficiencies in turnaround time with answers and sharing requested documents through VDR for some reason added more time to duration in a few of the cases, i.e. purely process setup issues.
I believe the timeline is really situational. Factors that may impact the timeline include the experience and expertise of the acquiring company, the punctuality of the selling company to provide documents, and the size of the acquisition.
In my experience, due diligence takes at least 4 weeks. Ultimately, you are balancing time efficiency with detail of work. A practice that may help decrease time could be defining materiality and scope.
Depends on the size of the deal, the assets your looking at and what you seek to do after the deal. Few weeks for sure.
While many have suggested a few to several weeks are typical for DD, I can tell you that the complexity or age of the asset or business being diligenced can extend that timeline materially. I was just part of a divestiture of an asset that was very old and had sub-optimal record keeping over many decades. For us to provide all the relevant contracts, deeds, surveys, etc. in the data room took an unusual amount of time, which extended the DD process from several weeks to several months.
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