Why is due diligence important in the sale of a business?


July 14th, 2022


Written by

Vesta Software Group

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Before proceeding with the purchase of any software company, our team at Vesta Software Group take the time to carry out due diligence and gather as much information about the business as possible, including an overview of current and historic performance, employees, clients, market sector and owner/shareholder aspirations post-acquisition.

The importance of due diligence in acquisitions

Buying a business is no small task. Due diligence is a crucial step in the transaction and is designed to assist both us, the purchaser, and the current owner.

For us, we are acquiring the company “forever”, so we must understand the key risks and issues inherent to the business. Due diligence assists us to help build a clear picture of the journey we will be embarking on as we support the company’s future growth. It also allows us to consider how the business and will align with us going forward and helps to develop an effective and efficient integration strategy.

From a seller’s perspective, due diligence assists in the organisation of the paperwork and information required for the disclosure process in the Share Purchase Agreement (SPA), which is drafted by legal advisors on both sides to frame the transaction from that point of view.

How long does it take?

The length of the due diligence process will vary depending on the size of the company and the complexity of the sale but typically takes from two to four months. This time will enable us to complete a thorough evaluation of the business we are buying.

Types of due diligence

Our list of research can be fairly exhaustive depending on the software business we are buying and its individual circumstances. Due diligence typically covers:

  • Financials – income statements, balance sheets, invoices, payables etc.
  • Legal – corporate information, litigations, contracts and trading, customer/client agreements, intellectual property etc.
  • Employment & HR – employee contracts, payroll, contributions, etc.
  • Accounting – property, assets, liabilities etc.
  • IT – data protection, IP etc.
  • Insurance
  • Pensions
  • Other

Due diligence can be one of the most time-consuming aspects of an acquisition, but it is an essential step to allow for a smooth transition. If you have any questions about M&A or finding a new home for your business, get in touch with our team today.