Middle Market Commercial Due Diligence Gaps

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    Marcelo Lopes Abud

    How difficult it is to perform a good commercial due diligence in the Middle Market?

    How negative it is for a deal when Account financial numbers differs from Management numbers?

    In my opinion owners of a sell side only loses when their numbers aren`t coherent and in line with accountability. When you cannot provide a good quality of financial report for Buyers, the worst number should be the one that will feed financial analysis, causing a discount over the target’s fair value.

    Owners that are willing to sell their business someday, should have a good quality of internal controls (management reports), because this “little detail” can make they lose money or make the deal inviable.



    In terms of internal analysis there may be challenges around the robustness and depth of management information, however many middle market companies are very well run, and are excellent at leveraging strong industry and customer knowledge with clear and simple metrics to manage their business.
    Regarding external analysis there will be greater need to rely on interviews as less desktop data in the middle market will be available. However depending on the industry there will still be well informed individuals, likely in Legal, banking and other areas, as many middle market companies have to rely more on external advisors as it would inefficient to maintain in-house. Identifying and speaking to the right experts is key.

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