Those investors seeing great opportunities in this challenging environment are still doing deals. Is the due diligence process any more difficult or important in these tough times?
We say the short answer is NO
Yes there might be an inclination for sellers to, say, divert attention away from a downturn in sales and profitability but the risks aren’t so much more overstated now as they have always been.
It is, and always will be, important to look around every corner and under every customer list to make sure the due diligence process addresses all the potential risks – not just the ones with a $ in front of them.
Up to date and accurate debtor payment terms might be something to take a thorough look at – especially if that type of information had been provided many months before at the initial investigation stage.
On the flip side though, it could be that the current management have reacted to slower trade by taking the paring knife to costs. If you have a great plan to increase sales this could be a deal sweetener worth spending more time on in Due Diligence.
You were always going to do profit forecasts and cash flow projections right? You were also going to take a pretty thorough look at the underlying assumptions right? Not much has changed here then either.
The financial stability of suppliers (so often now offshore) was important before and it’s important now. Same old same old.
Bottom line = Due Diligence is always important enough to do as thoroughly as possible.
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