Buyers of businesses inevitably run some risk that an acquired business may turn out to be different than expected. Buyers therefore routinely conduct due diligence, or an investigation of the company being acquired, before the sale. The purpose is to verify that the business is what it appears to be, to identify any potential show-stopper problems in the target, to assess value and other issues for potential price concessions, and for defining the seller’s representations and warranties. Sellers will usually carry out their own due diligence to ensure that they are in compliance with their representations and warranties in the sale agreement.
Lenders and equity investors such as venture capital firms also conduct due diligence before a transaction, for similar reasons.
“The Art and Science of Due Diligence” is going to be the subject of an hour-long panel discussion at the Northwest Growth Financing Conference being held in Seattle on August 4, 2011. I have discussed the presentation with Duff Bryant, the moderator, and they expect the panel to touch on some due diligence issues that are specific to limited liability companies. LLCs can raise a variety of due diligence issues such as LLC power and authority, tax issues, and unusual provisions in LLC operating agreements. The panel includes investment bankers, lawyers, and a principal from a private equity group, so it should be a well-informed discussion.
The Northwest Growth Financing Conference has been put on by the Seattle ACG Chapter for the last several years. The day-long Conference is well-attended by private equity groups, acquisitive corporations, venture capitalists, lawyers, finance executives, and others interested in investment and acquisition of middle-market-sized companies. Registration is available here.