Buy-Side vs Sell-Side Due Diligence

27th June 2022 | News

In the process of purchasing or selling a business, due diligence is among the most crucial steps, regardless of which side of the transaction you are on.

When it comes to business acquisitions and the process of due diligence, you may well have heard the terms ‘buy side’ and ‘sell side’ thrown into the mix. Both of these forms of due diligence have their benefits, and though they may both be essential to the transaction and sale of a company, they are not the same. Each term refers to a different end of the transaction associated with selling a business and the processes that must be carried out prior to completing the sale.

With that said, if you’re looking to figure out the key differences between these two terms and what they offer, then look no further! In this article, we will outline and simplify what both buy-side and sell-side due diligence mean.

Buy-side due diligence: What is it, and who is it for?

For all business acquisitions, the process of due diligence is essential, whether you’re on the buying side or selling side of the transaction. Buy-side due diligence refers to the process that buyers and investors must carry out prior to making a purchase and acquiring a company. It can be conducted professionally by buy-side entities.

Buy-side due diligence is all about fairness and acquiring the right deal at a fair price. For all buyers, when considering a potential acquisition, it is critical to find a quality firm that fits your overall goals and corporate objectives, while it’s also equally important to acquire it for a reasonable price.

Buy-side due diligence is the process of making absolutely sure that buyers are paying the appropriate price for the right asset, which is done through a thorough review and analysis of the target company’s financial, historical, tax, and other records. This also entails assessing the asset’s future potential under new management and recommending a price range for a potential investment.

Understanding how much value could be generated after the acquisition by integrating operations like procurement, sales, and advertising is essential in mergers and acquisitions. After the acquisition has gone through, opportunities for improvement are vital, thus acquirers should assess any upside potential – this can be done through buy-side due diligence. A reputable buy-side analyst can help buy-side firms, institutional investors, and investment bankers who make wise investment decisions.

What is the purpose of due diligence?

Regardless of which side of the transaction you are on, due diligence is one of – if not the – most important steps in the process of a business sale or acquisition.

Due diligence is the process whereby a thorough review and audit of a business is carried out, often prior to any closing deals, merging or acquisition of a business. The goal of due diligence in the business acquisition is to guarantee that whatever decision or transaction you make in regard to a business is well informed, increasing your likelihood of contributing added value to a deal.

While audited financial statements serve as a start point for a prospective buyer’s evaluation of a target company, they often do not address the firm’s capacity to sustain and expand revenues, the practicality of management’s estimate, or previous working capital needs.

Due diligence is used by accountants to analyse and assess a business’s several different financial and commercial operations; it’s used quite frequently by finance institutes in the process of an external audit. Conducting due diligence on a business or organisation varies by transaction. However, there are some specific procedures that are typical to each due diligence type.

How does an accountant conduct due diligence?

When conducting due diligence, accountants review the financial elements of a potential acquisition or target business and give assurance about the company’s financial position by identifying important financial and commercial concerns.

Accountants will evaluate and confirm a company’s financial, administrative, and tactical aspects, as well as maybe its asset classes and institutional accounts. Each recommendation they provide is personalised to your organisational requirements, and they make sure that every agreement is a good fit for you and your corporate goals.

Accountants will conduct a thorough review of the target company’s conformity with its typical business practices. They will then perform comprehensive examinations of the company’s:

  • Credentials
  • Operating state
  • Financial standing
  • Management team history
  • Business and financial market risks

Based on their expert advice, an accountant will then examine the situation and provide a recommendation as to whether you should proceed or how the transaction should be structured and handled.

Sell-side due diligence: What is it, and who is it for?

Whereas buy-side refers to the buying side of a transaction, sell-side due diligence outlines the process that sellers and those looking to sell their business to a potential buyer must conduct prior to making a sale.

Even if you receive an offer unexpectedly, sell-side due diligence guarantees that your business or organisation is ready for a sale. Sell-side due diligence is a process that involves evaluating and valuing how much a company is worth. It works by assessing a range of records to determine the company’s value. It can highlight the benefits and drawbacks that potential buyers should be aware of before buying a business.

Making the effort to conduct sell-side due diligence prior to going to market will equip you with a reasonable and valid valuation for your business, as well as all the precise information you need to provide to potential investors before you start your search.

When planned and implemented properly, sell-side due diligence can reveal previously unforeseen risks of the transaction, therefore providing the business enough time to identify and resolve them before they become more damaging issues later in the selling process.

How is the sell-side process navigated?

The process of sell-side due diligence consists of analysing your own business model, financials, management committee, and other processes before an acquisition is made. Serving to ensure that your business is ready for an acquisition, sell-side due diligence enables you to examine and address any concerns by taking action on anything that could potentially arise on a similar procedure carried out on the buyer’s end.

To navigate the sell-side process, you must first come up with a motive and reason for selling a business. As well as this, you must have some reasons to back up this motive since this will be one of the first things a potential buyer will ask you when initiating a sale.

Establish your reasons for selling

A buyer needs to know your reasons for selling. If your motive is that your business has problems, then they will need to factor in the details so that they can go into the acquisition knowing what changes they may need to make as soon as they take over. Here, it’s best to be honest with the potential buyer and let them know why exactly you plan on selling the private equity, rather than hiding anything they will go on to discover when they acquire the company from you.

Evaluate your financial records

Once you have come up with valid and well-backed reasoning for selling your business, you then want to assess your financials. Among the most common causes of sales falling through is poor financial performance – there is never a wrong time or moment to address those concerns, even when you’re not actively selling to anyone.

Assess your business growth potential

You also want to make sure your business is sustainable and has some potential to keep growing. If not, this will be less attractive to potential buyers and they may be deterred from acquiring the business from you. You need to make sure your business is sustainable and should establish reasons with evidence as to how it can continue to grow, develop and thrive once you have sold it to new ownership.

Use the support of qualified accountants

You may want to consider a third party to help you with your sell-side due diligence process. Whether or not you should employ a third party to undertake sell-side due diligence is up to you but should be determined by the value you anticipate them to provide to the process.

Enlisting a third party pushes business owners to take a more critical look at their company and its corporate strategies and operations, as well as rethink how certain areas could be improved or modified entirely.

Here, Williamson & Croft can help. Our qualified accountants can provide you with expert transaction services to guide you through your business sale, helping you make informed decisions and create value.

Our transactional services, and how they can help you conduct due diligence

So, you have now developed some knowledge regarding the ins and outs of due diligence, specifically the major differences between buy-side and sell-side – and you have now discovered that you need help with due diligence for your transaction or acquisition.

Well, you needn’t look any further. We’re here to help with our professional and exceptional range of transactional and market services here at Williamson & Croft.

At Williamson & Croft, we combine our resources and knowledge to create a viable solution that is tailored to your individual needs, allowing you to make knowledgeable financial decisions regarding business sales and acquisitions.

An effective approach to due diligence

For those seeking to evaluate the financial sustainability, risks, and potential value-creation possibilities for a public company acquisition or disposal, we provide both buy-side and sell-side due diligence process services. That said, we specialise in all aspects of due diligence – not just buy-side and sell-side, we also cover tax due diligence and vendor due diligence, as well as provide expert structuring advice and business valuations. Not to mention, our trading desk is made up of experts in the stock market and unit trusts.

When you work with us, you’ll acquire all the information and assistance you need to make an informed decision that meets your objectives. We can examine and evaluate a company’s financial, operational, and strategic assumptions utilising our very own effective due diligence approach. Every recommendation we make is customised to your company’s needs, and we guarantee that every deal or transaction is the right match for you.

Tax due diligence

We can even support and guide you through the process of tax due diligence. Tax due diligence is another crucial step to take when seeking to purchase a company. Tax due diligence is a critical procedure in which we thoroughly examine a target company’s previous tax compliance and current tax risks and tax returns. While tax due diligence is often intended for buyers, it may also be beneficial for leaving shareholders who want to make sure their company is in excellent working condition before selling.

Tax liabilities can be difficult to identify and measure, but as specialists in due diligence, we can filter through them to present extensive, targeted, and economically oriented due diligence studies to prospective and institutional buyers.

Tax due diligence is significantly more complicated and time-consuming than you would think. Nearly every component of a business is taxed in some form, and almost often on an ongoing basis. This is why you need our team of due diligence experts and qualified accountants here at Williamson & Croft to provide you with a tax due diligence process that will give you the best outcomes and verdicts you need when it comes to company acquisition.

Business valuations

Our professional accountants can also provide you with expert business valuations and corporate finance. The process of determining the economic value of a full company or corporate division is known as a business valuation. For a variety of reasons, business valuations can be used to establish the right value and appropriate worth of a company.

Get help with your financial due diligence today

Our due diligence experts and sell-side analysts deliver individualised, proactive, and dependable customer service and experience that is suited to your specific requirements. We are there for our clients at every step of the way to ensure a secure and effective business transaction – no matter what type of transaction it is or where you stand.

We can help with pension funds, hedge funds, mutual funds and sell-side entities. Our company can even help with investment banking, commercial banking, fund management and financial modelling.

If you would like to find out more information about our extensive range of professional accountancy and due diligence services, don’t hesitate to get in touch with us today and you can talk to our team for advice and support.

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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