Looking at Your Business from Every Angle
Due diligence is a protective set of processes that reduces transaction risk. The buy-side collects and analyzes the material facts of the other party in a business transaction. The due-diligence process allows buyers, investors, lenders, and other stakeholders in a transaction to fully assess transaction risk. The buyer’s chief concern is typically on the target company’s historical financial statements and related financial metrics, as well as the reasonableness of the target’s projections of its future performance.
Topics of Potential Inquiry or Concern
What do the company’s annual, quarterly, and (if available) monthly financial statements for the last three years reveal about its financial performance and condition?
Are the company’s financial statements audited, and if so, for how long?
Do the financial statements and related notes set forth all liabilities of the company, both current and contingent?
Are the margins for the business growing or deteriorating?
Are the company’s projections for the future and underlying assumptions reasonable and believable?
How do the company’s projections for the current year compare to the budget for the same period?
Areas of Due Diligence
Quality of internal controls and management routines and guidelines
Quality of reporting earnings and cash flow
Quality of record keeping and accounting systems
Appropriateness of accounting policies and procedures
Quality of collateral to secure the transaction
Potential for off-book assets and liabilities
Projections of future financial performance
At Stone Capital, we understand that one of the essential reasons that businesses fail to come to a sale is that the sell side's advisory team fails to consider and adequately prepare for the due diligence process. Accordingly, Stone Capital performs buy-side due diligence at the front end of a transaction to mitigate potential dealbreakers once a Letter of Intent (“LOI”) is signed and the buyer begins formal due diligence procedures. Our exit planning strategy includes both a sell-side and a buy-side approach. We look at the value through your lens (the “sell-side”), but we also assess the value from a buyer’s perspective (the “buy-side”) using the most current market data. In doing so, we reduce the probability of surprises occurring during the most crucial phase of the sale.