Does onsite visit really helps in Due Diligence?
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Onsite visits can be a game-changer in due diligence, offering a firsthand look at a company’s operations and uncovering critical information that might otherwise go unnoticed. In-person interactions with key personnel provide an opportunity to directly assess their skills, experience, and commitment to the successful integration of the two companies.
Onsite DD adds a layer of assurance and provides a more comprehensive understanding of the target company. The insights gained from being physically present at the business can confirm or challenge findings from documentation and help identify risks or opportunities that may otherwise go unnoticed.
In my experience, onsite visits are necessary to fully understand the target company and verify the targets data presented in the data room. This is specifically important when the target company is a manufacturing company with highly complex processes. Understanding manufacturing maturity can only be evaluated by being on site. Recently launched R&D programs need to be evaluated for volume scale up and the capital needed to meet market volumes.
Onsites can indeed be very helpfull. Especially for the cultural fit and creating trust between the two parties. You can actually see how people behave, react and see if that fits with your own organization.
I believe on-site visits add tremendous value in the due diligence process. It’s difficult to assess the culture of a company unless you have walked their halls. As stated in the above posts, it also helps trigger other potential due diligence items. Additionally, the time spent with management allows for a more thorough assessment of their style and competence, something that can’t always be assessed with video conference calls. I also believe the additional face-to-face time helps build the relationship and familiarity that can be helpful in the negotiation process as you navigate the finer details of the purchase agreement as you approach closing.
From my own experience, onsite visit is important in due diligence. For deals involving hard assets (e.g. wind farms, office buildings, manufacturing plants, sales branches), onsite visit helps in assessing the real condition of the equipment. In addition, onsite visit is an opportunity to assess the people of the target company (management team and onsite employees). Quality of people, company culture are often intangible items that cannot be fully captured through data room. Onsite visit may also include a face-to-face demonstration of technology, capabilities or products, which is extremely useful for buyers and buyers’ advisors who may be unfamiliar to the sector. Lastly, though unrelated to due diligence, onsite visit sends a signal to the seller on the seriousness of buyer in making the deal.
Yes, it does.
Sometimes, pictures of facilities or even compliance with ISO norms are not enough to identify, in particular, potential risks (short term or long term) for production, environmental risks (in my industry, this is particularly relevant).
Discussing with employees on site can also help to understand how the plant is managed
I believe that on a Cultural fit perspective, it is essential! It will give you the opportunity to observe and talk to people, and feel the overall vibe and culture. There’ s nothing better than that to really assess the cultural fit of a potential deal.
An on-site visit allows you to observe the company’s operations in real-time, which is invaluable for understanding how well it functions day-to-day. This can reveal operational inefficiencies, capacity issues, or strengths that may not be fully evident from financial reports or other documentation
Very effective. It may be done before anything is close to be announced though. With discretion and respect of the target company, you may not be able to do a proper on-site assessment until late-stage DD.
In some industries, on-site visits are crucial during due diligence. For instance, in the solar industry, the U.S. Customs and Border Protection (CBP) has launched an initiative aimed at preventing forced labor and ensuring compliance with the Uyghur Forced Labor Prevention Act (UFLPA). As part of this initiative, CBP has issued a questionnaire that requires importers to provide detailed information about their supply chains. The questionnaire specifically asks whether importers conduct on-site visits to verify production, compliance policies, and procedures. Therefore, it is fair to say that best practices for due diligence include conducting on-site visits to actively audit supply chains and confirm compliance with labor regulations, particularly concerning forced labor practices.
Very important and helps in better understanding of the culture of the company. Also gives an opportunity to start building trust and cooperation between the two companies
I think it depends on the nature of the business. Onsite visits are more valuable in the industries where physical operations, infrastructure and compliance with specific standards are critical (manufacturing, healthcare, etc). Onsite visits will be helpful for the purpose of verification of existence and presence of operations, assessment of the infrastructure, facilities, how the operations and processes are organized; also they can help with the assessment of the company’s culture and the effectiveness of its teams, which can be critical for integration.
On-site visit is useful in identifying red flags or follow-up issues for further information gathering and investigation.
Some examples of useful information, which can be uncovered in a site visit:
– Facility size and condition, as compared to peers
– Existence and size of inventory
– Production activity actually taking place
– Visible activity volume of incoming delivery of raw materials or outgoing finished goods delivery
– Informal discussion with front-line production staff
It is critical for a strategic buyer. Though in smaller deals, my buyside clients tend to spare the external advisor teams from the site visits from cost consideration.
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