Daily Archives: May 15, 2020

Virtual Due Diligence

One of the webinars from Business Brokerage Press on May 7, 2020 was Structuring Transactions Post-Coronavirus — COVID-19 Virtual Roundtable.  https://www.axial.net/forum/structuring-transactions-post-coronavirus-covid-19-virtual-roundtable/

The roundtable was led by Axial CEO, Peter Lehrman, and included 10 middle market deal professionals. Kristina Mayne, Director of Events for Axial, has written up notes from the webinar.

Here are a few questions and answers from the panel regarding virtual due diligence that are helpful for business sellers and buyers.

 How are perspectives on virtual diligence evolving?

  • It can be challenging but you can still check the four C’s of credit (capacity, character, collateral, cash flow) in a virtual environment.
  • It comes back to knowing the sponsor and spending enough time with management on the phone or video call and expanding your breadth of contact — you can still validate integrity in an old school way through a virtual format. Background checks are also imperative.

 How much diligence can be done virtually? Will you close a deal without meeting in person?

  • In person is critical — won’t submit any bid without meeting the management team several times.
  • Will perform diligence but not close without multiple in-person meetings. The assumption when submitting LOIs is that there will be multiple visits in person in June or July. Sitting across the table is a key part of relationship building and making sure everyone is aligned.
  • Sellers are offering virtual tours of plants in order to try to get deals done.
  • Most are assuming that it will be weeks before travel opens up, and counting on that to be able to get deals done.
  • It’s all about relationships right now — going back to people you know who you’ve worked with before rather than entertaining new vendors.

 New standards for environmental health and safety due diligence post-COVID   

  • SRP Environmental (an environmental, health and safety consultant) is being brought in to verify that manufacturing facilities are providing training and doing deep industrial cleaning for COVID. This has held up deals.
  • This work has replaced a lot of work they historically did in the oil and gas space.
  • This work will be a fundamental addition to due diligence for buyers of manufacturing facilities; also doing the work for office buildings, stadiums, and other facilities as everyone looks to open the economy. All the work has to be done on site.

Jeff Moody, CBI and managing intermediary for ECBI had this to add:

“While we have seen that many things can be accomplished virtually, the nature of a business transfer will require several in-person meetings. It is not like buying something online.”