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"Our time is limited, so let's not waste it helping each other gain deal experience (rather than actually closing the deal)." - Warren Buffet
Signing a letter of intent and kicking off due diligence is a big step and requires tremendous trust. Although nothing is consummated, we are getting business-engaged and promising to be exclusive.
But let’s be honest, due diligence is not designed for fun. It’s full of tough conversations, thorough reviews of financial, legal, and historical documents you may have long forgotten about, and negotiations around who’s responsible for what.
With that said, it’s kind of like eating our veggies - the faster we can get through it, the faster we will get to dessert.
At Nimble Capital, we handle due diligence efficiently. We have built a dedicated diligence team with agile experts who are laser-focused and hyper-responsive. This allows for quick turnarounds and speedy closing. We do this because we believe it helps us close the deal faster, with deeper knowledge, and with better post-close relationships. Here’s what you can expect from us during due diligence:
Timeliness: Time kills all deals, plain and simple. We work hard consistently, and prefer to never let things “sit.” Most of the time, we respond from our end within one business day, including follow-up questions. While we understand that most sellers still have a full time job running their company, and while we understand the additional time sometimes needed to respond to requests, we ultimately believe it's a matter of closely aligning priorities - in the sense that: your business will always be the very first thing we work on in the morning, and we only ask to be the very second thing you work on in the morning (right after taking care of your clients).
Let’s set mutual expectations for the pace of work. From our end, we pledge to set clear milestones and keep you informed on progress on a weekly or more frequent basis. And from your end, certain things will set us up to move at a faster space, including but not limited to: your proactive engagement of accounting and legal counsel specialized in business M&A transactions (i.e. ideally and with all due respect...not just your tax preparer, or you real estate attorney); active integration of said accountant and attorney to our process as early as possible (and no later than immediately post LOI); availability for meetings/calls from all parties; and thoroughness and timeliness of responses.
A well-resourced and highly responsive selling team can expect exploratory, confirmatory diligence, and working capital confirmation to last 4-6 weeks, with a first draft of the purchase agreement provided 1-2 weeks thereafter. Ancillary documents usually follow a week after receiving seller’s counsel’s purchase agreement revisions. All-in due diligence and documentation will likely last between 2-4 months.
Communication: We understand why sellers hire intermediaries to help them through this complicated process - in fact we highly welcome it as a general sign of sell-side preparation and commitment. Our strong preference is to have access to build trust and relationships with the key human beings in the equation, in-person and often. This in-person collaboration is especially important for people we’ll be working with post-close. We are happy to do this with intermediaries present if preferred, as long as it doesn't present a huge scheduling bottleneck. We understand this doesn’t work for everyone, so let’s establish clear lines of communication and a cadence from the outset. In other words, who should be talking to whom and when, who should be meeting with whom and when.
In general, we have found that meeting with the sellers in-person every 2-3 weeks for a quick human-to-human check-in is highly beneficial for deepening trust and keeping all parties engaged towards closing. Put it this way - the process is surely going to get frustrating for all parties at one point or another; but if we know we will be grabbing the bi-weekly coffee on Friday to hash it out, we can all sleep better at night, without getting stressed out jerking the refresh button for an expected email or upload.
Detail Orientation: Diligence is intentionally detailed. Please pay close attention to the requests and questions posed, and be thorough in responses. “Thorough” does not translate to quantity of words or documentation. Rather, if you know that the document requested will lead to more questions, be proactive. It will save everyone time and reduce the potential for issues before closing.
Tone: We will ask tough questions, but pledge to do so with transparency and respect. We’re not looking for “gotchas” that will kill the deal, but genuinely want to understand why things are the way they are, and if we can capitalize on potential future improvements.
Negotiation: Parallel to the diligence process, we’ll be negotiating the terms and structure of the transaction based on what we’re finding. Given the importance of timeliness, and unlike other negotiators, we try to only ask for exactly what we think is fair and will "show our work", in terms of how we got to where we did. If you disagree, that’s fine, but we ask that you "show your work" as well. Then, we can all settle on a solution that keeps the ultimate goal of closing on track.
Games: Due diligence isn’t a game for us, and we enter into it expecting to do the deal outlined in the LOI, assuming the information checks out. That said, we don’t expect the goalposts to be moved on us either. If you ultimately expect to close on different terms or timeline other than those outlined in the LOI, we should talk ASAP. Games generally end in delays, mistrust, and broken processes.
Benefit of Doubt: When we find something interesting, we give the benefit of the doubt and won’t jump to conclusions. If some corrective action needs to be taken, we’ll give you a heads up about it and see if we can help get it done. Spending time on a deal destined to die is in no one’s interest.
Throw a Flag: If we do find a deal-breaker during diligence, we will tell you as soon as possible, and we ask that you do the same, if something is not working for you. Again, spending time on a deal destined to die doesn't help anyone.
How Deals Die: We enter diligence with every intent to close, but, in full transparency, sometimes that just doesn’t happen. No doubt you’ve heard horror stories about getting the runaround, random retrades, or the inability to close due to lack of capital. Those aren’t a concern with us. We shoot straight, don’t retrade without a cause, and never make an offer that we don’t have the cash to close (you can talk to our lenders directly to verify this).
For a deal to die, generally one or more of the following has happened: material misrepresentation, suppression/delay of information or access, unwarranted deal structure changes, an unwillingness or inability to keep the communications line open, unclear or conflicting roles/responsibilities/priorities on either side, and/or a general lack of trust buildup that inhibits progress. In practical terms, if any of the aforementioned parties cannot treat the others' time and efforts with due respect, there’s a good chance the process will break.
No matter who does it, diligence is expensive and time consuming. We’ve invested in this capability heavily because we believe it makes for a smoother process, a higher likelihood to close, and better performance post-close. Yet every diligence process is a two-way street, and our experience is that for it to work, all sides and their advisors need to come to the table with the same commitment to these underlying principles.
If after considering all this, you and all your advisors are still committed to exploring a future with us, let's talk.
P.S. Don't just hear it from us - hear from these seasoned sell-side M&A experts on how best to navigate the process with any buyer:
From Exit Wise: The Ticking Clock of M&A: How Delays Can Kill The Sale of Your Business
From PCE Investment Bankers: Time Kills All M&A Deals
From Transworld M&A Advisors: Avoiding Common Mistakes in M&A – Time Kills All Deals
From Benjamin Ross Group: How Time Can Kill a Deal When Trying to Sell Your Business
From Certified Business Brokers: Avoiding The Biggest Deal Killer: Time
From Certified Business Brokers: Whether you are buying or selling a business, your accountant can make or break the deal.
From Morgan & Westfield: The Role of Accountants When Selling Your Business
From Southcoast Financial Partners: The Role of a CPA in the Business Sale
From "Mergers & Acquisitions for Dummies": M&A Management Meeting: The Importance of In-Person Visits
From Industrial Distribution: Selling Your Business: Common Deal Drivers and Killers
From Entrepreneurs Discuss: 10 Things That Can Kill The Sale Of A Business
From Tresle: Top 5 Deal Killers and How to Avoid Them
Contact info@nimble-capital.com to learn more.
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