September 19, 2018 at 1:52 pm #67798
I’m on the investor side backing an MBO involving two current board members. It seems that the timeframe to receive approval on the seller side is very tight and everyone is pushing for a very limited DD. Would you always consider pushy buyers as a negative signal? Under what circumstances would you be willing to buy in such a short timing?November 3, 2018 at 11:30 pm #70887
If there was readily available intel on the company and I was familiar with it then perhaps, however, my experience tells me that pushing to achieve a closed deal can easily lead to missing key DD items..December 16, 2018 at 7:57 am #73605
I agree. Do not rush into the deal without enough DD done, if you can help it. Too much is at stake.
I had seen one deal where substantial DD was done, and yet some key issues were left out as the buyers were pressed for time. This led to big surprises after the acquisition.January 13, 2019 at 8:52 pm #75695
I would say that the only time I would understand limited dd is in a type of fire sale situation where the price reflects the rushed decision making and risk. Of course if there is a push to close a deal quickly, assess why that rush is there. If the two buyers are members of the board the sellers might expect that they already known the business intimately, which wouldn’t be an absurd notion.
I think in such a scenario, its always better safe than sorry.February 4, 2019 at 1:11 am #76967
I may be misreading this, but you’re representing the buyers, aren’t you? And if there’s an offer on the table from the seller, then a pushy buyer is the ideal scenario. That being said, you’re representing board members trying to take control of their own company. This means that there is most definitely a time element that needs to be addressed, and it would seem like closing may be more important than any DD issues that may arise in the future. Lets keep in mind that the purpose of DD is to find as much info on a the company as possible, and who would know more about the company than the members of the Board? Your group knows what they’re buying into. Their biggest concern is not missing out on the opportunity to close on this deal. I’d focus my DD on why they need to buy so quickly and make sure that those circumstances are truly present and not a sales tactic. I’d also focus on who else is interested in buying and what the consequences of that acquisition would be. Since you’re representing your investor and not the Board, you may want to make sure that your investors are getting the best return on their investment and are not partnering up with Board members more interested in keeping their jobs than in a profitable company.March 4, 2019 at 3:05 pm #80506
As a rule, speed isn’t good for M&A operations but, at the same time, there may be a wide variety in which high-speed operations are suitable.
For example, if the target price is negligible versus the size of the buyer (Does Google really care paying an extra 50% in a $10m deal?….).
In my opinion, as an advisor your role should be to warn your client on the risks assumed but never require the perfect timing for your analysis. The perfect is the enemy of the good!April 9, 2019 at 9:36 pm #82824
A pushy, hurried seller is definitely a red flag and I would generally not advocate foregoing or rushing DD. However you noted that this is an MBO so presumably your clients would have or have access to much of the information which would be requested in a traditional DD. So a limited DD may be less risky and even advisable. Their could be priority placed on having robust Reps, Warranties and Indemnities in the SPA to provide comfort for any issues not disclosed in the limited DD. Consider also a sizeable escrow as protection. I agree with some of the poster above who highlighted that the rush can allow for room to negotiate on price.April 15, 2019 at 3:04 pm #83211
Marcelo Lopes AbudParticipant
A tight deadline for sure can scare the sell side or even the buy side!
A tight deadline also means a speedy due diligence process, where the quality of the diligence can be taken away when teams don`t have enabled time to perform a good DD.May 15, 2019 at 9:36 pm #84672
Agreed with Anjeli and Marcelo – pushy seller indicates desperation and you could be stuck holding someone else’s bag of problems.June 25, 2019 at 7:42 am #87020
In you case it seems that the buyers, two BOD members, have a good knowedge of the Company to acquire as I presume they were there already following the companys operations. The rush to close a deal may come from a number of circumstances like investor availability, urgent needs of the seller etc and in this specific case may be a good approach to close with a limited review.
Generally speaking my opinion is that pushy sellers, buyers, investors etc is not a good sign either from a risk point of view or from a cost/benefit analysis as every deal with its own characeristics must be taken seriously!July 11, 2019 at 6:50 pm #88774
Only in a case where the buyer has extensive prior insight and knowledge about the target would a limited DD process be advisable. As you mentioned, it is an MBO, which would indicate that the buyer, in this case, should have in-depth knowledge about the target. A limited DD process could be desirable in your example to minimize wasted time, and leave greater room for the negotiation process. However, in general, it is a red flag if the seller is very keen on conducting a swift and limited DD, as it could indicate that they are aware certain risks would surface in a more thorough DD.July 24, 2019 at 11:05 am #90507
I would not even consider making a speedy DD. However, if the seller is well prepared and all the data available matches the story the DD will anyway take less time.September 10, 2019 at 8:26 am #94653
Ang Pek HowParticipant
I would cautioned that do not rush into a deal without a sufficient due diligence (“DD”) being performed. This is where and why a disaster happens. Most acquisitions especially acquisitions involving public listed companies are always tied up with tight DD deadlines which causes the DD team to carry out the DD work at a rush. It often leads to surprises and identification of major issues after the acquisition process which could turn a good looking deal to a very bad deal subsequently. However, if the acquisition isn’t a large acquisition by the definition of the acquirer and the acquirer had possess sufficient information and good knowledge about the target company, a limited DD could be performed to reduce time and effort.March 16, 2020 at 1:37 am #107875
Due Diligence is only rushed relative to the projects risks. A seemingly long DD process can be more rushed than a shorter one, if the risks it is accounting for are proportionately larger. There are several main risk adjustments to consider in this case:
1. Management Buy Out. The Board of Directors members orchestrating the buy-out have access to privileged information about the target, reducing certain performance risks. Additionally the culture shock maybe low and the transition may even increase motivation depending on incentive structures.
2. Pricing. The MBO is a lower price transfer channel, reducing the risk of the transaction for the buyer. As well, a rushed transfer, depending on the direction of pressure to complete the deal, can reflect positively on the price paid for the buyers and further reduce their risk. Depending on the relative size of a buyer compared to a target, the price may not represent a significant risk regardless.
3. Reps and Warranties. Some areas where adequate due diligence can not be completed, risks can be mitigated through clauses in the SPA including representations, warranties, covenants, indemnifications, closing conditions, post-closing price adjustments, use of an escrow, etc. This does not include WI insurance, which instead covers unknown risks, and is not a replacement for lack of Due Diligence or poor target performance post-deal.
Depending on the projects requirements, and in certain scenarios where lower risk can be attained through other means, a faster Due Diligence could have an acceptable risk profile for stakeholders.August 27, 2020 at 3:07 am #112887
I would not dismiss a deal based on time sensitivity alone as an acquirer. Distress can bring some special opportunities. Price in the risk presented by limited DD.
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