Excerpt from The AMA Handbook of Due Diligence
by William M. Crilly and Andrew J. Sherman
Common Mistakes Made by Buyers During Due Diligence
2. Poor communication and
misunderstandings. The communications should be open and clear
between the teams of the buyer and the seller. The process must be well
3. Lack of planning and focus in the
preparation of the due diligence questionnaires and in the interviews
with the seller's team. The focus must be on asking the right
questions, not just a lot of questions. Seller's will resent wasteful
"fishing expeditions" when the buyer's team is unfocused.
4. Inadequate time devoted to tax and
financial matters. The buyer's (and seller's) CFO and CPA must
play an integral part in the due diligence process in order to gather
data on past financial performance and tax reporting, unusual financial
events or disturbing trends or inefficiencies.
5. Lack of reasonable accommodations
and support for the buyer's due diligence team. The buyer must
insist that its team will be treated like welcome guests, not enemies
from the IRS! Many times buyer's counsel is sent to a dark room in the
corner of the building to inspect documents without coffee, windows or
phones. It will enhance and expedite the transaction if the seller
provides reasonable accommodations and support for the buyer's due
6. Ignoring the real story behind the numbers. The buyer and its team must dig deep into the financial data and test (and retest) the value proposition as to whether the deal truly makes sense. They must ask themselves, "Does the real value truly justify the price?" The economics of the deal may not hold water once a realistic look at cost allocation, inventory turnover, and capacity utilization is taken into account.
Excerpted from The AMA Handbook of Due Diligence by William M. Crilly and Andrew J. Sherman. Copyright © 2010 William M. Crilly and Andrew J. Sherman. Published by AMACOM Books, a division of American Management Association, New York, NY. Used with permission. All rights reserved. http://www.amacombooks.org.