Completing a Sell-Side Due Diligence exercise prior to commencing a transaction process was once unheard of domestically. However, this has quickly become the norm rather than the exception. According to Hiter Harris, Managing Director and Co-Founder of Harris Williams, “Seller commissioned QofE reports have been routine in Europe for years but now are gaining frequency in the U.S.”
Sell-Side Due Diligence involves the preparation of a Company’s financial accounting, tax, human capital, and operational “story.” The processes and skills used by third party professionals when performing Sell-Side Due Diligence are very similar to those used during Buy-Side Due Diligence. However, a key difference is the benefit of time to prepare and full cooperation from company management, resulting in a more thorough and accurate assessment of the company being sold.
Areas of assessment include the quality of a company’s earnings, working capital requirements, tax structuring considerations, as well as human capital and operational considerations. The outcome of these procedures is often shared with prospective bidders and lenders. In other instances, the findings are used by the company as a tool to understand itself through the lens of prospective bidders and as a dry-run for the upcoming process.
Sell-Side Due Diligence has become accepted in the market because it benefits all participants in a transaction. From the seller’s perspective, it is a key tool in maximizing exit value and proactively getting in front of potential pitfalls. From the investment banker’s perspective, it is a driver for speed and process efficiency. For bidders, it is a chance to understand the prospective investment without investing an extraordinary amount of effort and expense. Bidders still ultimately perform their own diligence and engage their own third party professionals. However, when Sell-Side Due Diligence is performed correctly buyer’s diligence often becomes a confirmatory rather than exploratory exercise. Harris further comments, “It’s smart to take time to do this in many cases. Preparation is always a benefit.”
Sell-Side Due Diligence has been an important part of A&M’s growth. During FY15, the volume of sell-side projects completed by A&M increased by 135% over the prior year. A&M’s growth in this area has not only been domestic. A&M’s Transaction Advisory Group is global. Its Europe, Asia, Latin America and India due diligence teams have experienced increased demand for Vendor Due Diligence (VDD) services. Those teams have extensive experience in providing Vendor Due Diligence services and thoroughly understand the VDD process.
Planning a public exit? No problem. A&M’s Capital Markets and Accounting Advisory team can help. An early assessment of the company’s ability to operate as a public company will ensure that it is prepared to launch when the timing is right. Unrestricted by audit-based conflicts, our team provides dedicated, hands-on resources throughout the IPO process – working with management, its auditors and attorneys to ensure quality, timely results.
A&M’s Keys to Success are its focus on quality, senior-level involvement, speed, and flexibility in approach. Following a successful exit process, A&M is regularly sought out for new exit opportunities by bidders and intermediaries who witnessed and experienced A&M’s approach. Time and time again, the quality and consistency of the team, speed and efficiency of the process, and overall, lack of subsequent surprises is what has made A&M a global leader in the space.
In 2016, Alvarez & Marsal’s Transaction Advisory Group celebrates 10 years of service to the private equity community. In that 10 year time period, the M&A market has presented both tremendous opportunities and tremendous challenges. Consider this: in the last 10 years, we have seen some of the lowest deal volume in the period, with 9,870 deals completed in 2009, to the highest with 17,500 deals completed in 2014 – or a peak to trough spread of over 75%.
However, what is also borne out by the numbers is this: the amount of money to invest – “or dry powder” – has been on an overall ride up to record highs in the last 10 years: from $404 billion to $1,343 billion in 2015. That is an increase of approximately 230% over a 10 year period. Today there is significant capital to be put to work, and significant work to be done getting portfolio companies ready for sale.
When Alvarez & Marsal launched its Transaction Advisory Group in 2006, it was based on the belief that the firm was uniquely positioned to navigate these volatile global market conditions. Our business has indeed been built on the concept of “counter-cyclicality”. We have created a global, integrated suite of services that delivers value to our clients throughout the volatility of the M&A market these last 10 years. As potential market disruptions continue– election cycles, geo-political issues, and new technologies that can change business models overnight – the A&M Transaction Advisory Group is well equipped to meet the ever changing needs of private equity investors.
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