The volume of documents that can be exchanged during the due diligence phase, which has a multidisciplinary dimension, can be impressive. To support the facts, the vendor must provide the necessary supporting documents. The fundamental principle to understand is that the documentation must allow the buyer to operate the business the day after the transaction, just as if the seller were no longer present.
Let’s take the financial aspect as an example. This includes the monthly accounting results, from the external accountant for the annual financial statements, receivables and payables, the various government documents including the numbers (taxes, DAS). Typically, each lawyer or accountant has their own list of required documents. However, it may happen that buyers submit a single diligence list including the different perspectives. In this case, these are often large-scale companies engaged in regular acquisitions.
It may also happen that we receive two separate lists listing the same documents. With the various stakeholders it is then a question of determining the most effective process. From our point of view, this means that the buyer risks paying double fees because the documents will be reviewed by different firms. Some vendors prefer to hold smaller meetings with their legal and accounting teams separately. We draw attention to this point, while emphasizing that the final decision always rests with the vendors.
As best practice, these documents are not only exchanged by email, but are also recorded on a document exchange platform.
Quality platforms have the advantage of notifying users as soon as a new document is available, managing access authorizations according to needs, and allowing various settings to facilitate document submission.
Diligence lists received may include more than 300 documents to be provided. For the seller, the amount of work seems insurmountable at first glance. The first step is to identify documents not applicable to the current transaction. Often, particularly in the case of SMEs, more than half of the documents in these lists are irrelevant, particularly when lawyers, buyers or accountants use generic lists. By carrying out an initial sorting and therefore reducing the number of applicable documents to provide, we considerably reduce the pressure felt by sellers.
Basically, what we tell our sellers is that there is only one way to eat an elephant… and that’s one bite at a time. You have to arm yourself with patience and good humor, and you can get there. We often prepare our clients in advance. Hiring a professional team can greatly facilitate this process.