Collaborative due diligence for acquisition or sale
A few private equity firms are talking to Business Research Company (BRC) leaders. They are interested in acquiring the research company dominating a niche market in the hospitality industry. How can BRC and private equity companies move the discussion to the “bargaining arena” quickly and without “circular arguments“?
Collaborative “due diligence” is one proven method of fact-finding that brings the negotiating parties with varying interests and perspectives together. The joint effort requires a pre-determined specification agreed upon in advance for collecting, analyzing, and interpreting the information. The agreed-upon outcomes of the collective due diligence become the foundation for negotiation.
The parties must form a joint team and consider the following steps for collaborative due diligence.
- Scope the Dialogue
- What is the negotiation agenda? What will the joint team answer, and what topics will they address?
- What are the ground rules? The parties may have differing views on information collection methods.
The most straightforward way to crystallize ground rules is to have a trusted intermediary with the right background do some shuttle diplomacy — carry drafts from party to party until they agree.
In establishing the ground rules, parties must ensure that:
- All sides have access to appropriate expertise for a productive dialogue.
- Rules set the time and money participants spend collecting and analyzing data and
- Confidential agreements and participants’ clear position statements are included.
2. Establish a methodology for analysis
After scoping the dialog phase, BRC and PE firms are ready to select neutral advisers and analytic methods for necessary answers. Joint advisers will cut parties’ research costs in half. If each party decides on its advisers, the likely result is the all-too-common case of “dueling experts.”
All advisers:
- Must subscribe to the ground rules and state the assumptions they make
- Must clarify the levels of uncertainty and risk built into their analysis, and
- Make clear the time frame they use for the analysis (separate time frames will result in less relevant outputs).
3. Know the roles and responsibilities
No matter where the negotiation takes place, the parties must meet with the advisers throughout the collaborative due diligence process. However, in certain areas, only the leaders of BRC can contribute specific knowledge — for example, the CEO for vision and strategic thrusts, the COO for operational excellence, and the CTO for relevant technological implementations and plans.
4. Jointly evaluate preliminary findings
A collective examination of a range of “What If?” scenarios is crucial to finding the “bargaining arena.” The advisers must present their work face-to-face with all sides present. They must clearly state the issue(s), the hypotheses, the analyses, and the preliminary findings.
The advisers’ preliminary findings will likely generate a “second-order” set of questions, sending the analysts back to work. The analysts’ objectivity is essential even after delivering the preliminary findings. They must not recommend any course of action due to their results.
5. Communicate the results to employees
If the negotiators are corporate executives, expecting them to communicate the results companywide without help is unreasonable. Instead, if necessary, shared advisers might present the results to each constituency or on a website accessible to both sides.
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