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Selling a tech business and preparing for due diligence

Posted on 18 June 2014

When trying to sell a tech business, you should know that the acquiring group will want to conduct a due diligence. Due diligence is basically the information gathering process that a buyer conducts before committing to the purchase of a business. Immediately after you sign a letter of intent with a potential buyer, the due diligence process will begin. In this process, the buyer will want to get into all the details regarding your company. Here are a few advices and things to consider if you are trying to sell your tech business, in order to prepare for the due diligence.

 

The due diligence team

The buyer will assign one person or a whole diligence team, depending on your company’s size and the buyer’s will. For a tech business, a diligence team may include experts in more domains, such as accounting, legal, Human Resources and IT. They may be employees of the buyer or outside consultants. Usually, as soon as the letter of intent is signed, the due diligence team begins to research your company online and also review all the documents you provided. You can also get in touch with the members of the due diligence team to help them get all the information they need about your company.

 

Cover story

For obvious reasons, most businesses prefer to hide the fact that that the company is in the process of being sold from the employees at this stage, to avoid any distractions and unnecessary stress; so one thing you should discuss with the potential buyer is a cover story, in order to ensure the process of the due diligence is going smooth. Some of the most common cover stories refer to the due diligence team as outside consultants or potential business partners that want to know more about the company. Still, you don’t want to tell a lie, since if the deal closes, your employees will have to work together with the members of the due diligence company, and it is preferred to avoid any potential tensions.

 

Due Diligence Requests

In the next phase, you will probably receive a list of due diligence requests, such as detailed financial data, copies of customer and vendor contracts, Information on patents, bank records, employee records, insurance policy information, network diagrams and other IT details or customer references. The potential buyer will want to have as much details as possible about all the aspects regarding your business, so you must be prepared for all potential requests.

 

Tips for preparing for due diligence

• Be patient and comprehensive, since the due diligence process takes time and requires a lot of work. This way it is less likely to get frustrated along the way.
• Even if it’s a difficult situation for you, always try to put yourself in the buyer’s shoes. Ask yourself whatever you think you would want to know if you where the buyer and make sure you have all the answers.
• Try to be as organised as possible and try to prepare early, in order to know what to expect.
• If your company has any problem areas, if it’s possible try to solve them or to present solutions, and if it’s not, always present them from the beginning, since they are going to turn out anyway and you don’t want to start with hiding things.

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