The due diligence process can be an arduous and expensive
previously noted by Sara Josselyn on this blog. While there is
no specific approach to due diligence, it is no longer perceived
solely as a buyer's burden. More sellers are conducting what is
referred to as "'sell-side" or "internal due
diligence" to attract sophisticated buyers, improve
negotiations and potentially enhance the value of the transaction.
This approach is gaining momentum, and coupled with today's low
interest rates, may lead to an increase in M&A deals in
Tell and tailor the business story
Sell-side due diligence is best commissioned by a seller before
a potential buyer has been identified. Sellers are in the best
position to conduct internal due diligence and tell their story.
This allows a seller to take control and rectify potential issues
within the business and take corrective measures early, as opposed
to having such points used as negotiation tools by the buyer later
on. In addition, sell-side diligence allows sellers to tailor their
story, increase transparency and promote their credibility and good
Often the objective when selling a business is to capture the
highest valuation possible. While a number of factors drive deal
valuation, a company's prospects, competitive landscape,
economic conditions and deal structure, among many others, can have
a dramatic impact on deal value. Incomplete or inaccurate
information, particularly financial data, may have a direct,
negative impact on sale price. Conversely, sell-side due diligence
and reducing uncertainties about the accuracy and reliability of
information being provided may make a potential buyer more willing
to pay full consideration – or even a premium.
Due diligence... on the buyer
Being proactive and conducting internal due diligence early in
the sales process may then provide a seller time to conduct due
diligence on a prospective buyer. When selling a specialized
business, such as a franchise or technology company, a seller may
want to examine the expertise of the acquirer's management team
and its experience in a particular industry.
The seller will also want to ensure the buyer's ability to
pay the purchase price – this is especially true when the
buyer is making deferred payments. The seller will want to ensure a
large down payment and evaluate the buyer's collateral.
Although the purchased business or assets are generally used as
collateral for the remaining installment payments, other assets
could also be considered as possible sources. Where there's an
earn out, the seller may want to ensure the adequacy of working
capital to operate the business immediately after purchase and
ensure that the buyer has a plan to successfully run the
M&A deals are, and have always been, challenging to close.
Buyers are less likely to spend time on transactions that will not
ultimately proceed to closing, allowing them to focus their
attention on only the most attractive opportunities. A proactive
seller can increase the chances of an acquisition, expedite
closing, maintain control and increase its valuation. Sellers
should never underestimate the value of understanding their buyer
and the power of introspection. They may want to roll up their
sleeves and engage in some heavy lifting early, or better yet, they
can get their lawyers to do it.
Norton Rose Fulbright Canada LLP
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The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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