Series 79: 12.1.3. Performing Due Diligence On The Seller

12.1.3. Performing Due Diligence on the Seller

The buy-side adviser comes into the due diligence process later than the sell-side adviser, who has usually been involved in due diligence for weeks or months before the prospective buyer enters the picture. At least in the early stages of the prospective buyer’s due diligence, the focus is on the information in the CIM. However, the buy-side adviser should supplement this information with data from third parties. For example, state public records should be searched to identify any ongoing litigation, judgments against the target, or liens filed on the target’s assets. Public records will also reveal whether the target is current in its state filings and whether it has any necessary business licenses. Searches of media databases may reveal interesting data about the target’s business practices or management. The buy side’s due diligence usually also includes an evaluation of, and in-depth background checks on, the target company’s management, even if the prospective buyer intends to replace them. If the terms of the CA allow it, the buy side may interview customers, employees, vendors, or suppliers to confirm information provided by the seller.

The buy-side adviser should also consider what potential corporate, structural, or legal issues might exist. Many of these issues are the same as those a sell-side adviser must anticipate: tax consequences, liabilities that might be transferred along with