How to handle lack of information and unwillingness from seller in the DD phase?
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Hi all,
I’m curious how you would handle unwillingness of the seller in sharing (almost any) information in the DD phase? What would be your steps and how would you approach the seller?
Thanks!
The seller’s reluctance to transparently share all relevant information is definitely a red flag. Proceeding with the acquisition without full transparency poses significant risks. In my view, this is a take-it-or-leave-it situation: either we have open, complete communication, or we consider a more assertive approach, such as a hostile takeover. This would involve engaging key stakeholders or potentially aligning with members of the management who are genuinely interested in driving improvements.
A very important topic for discussion! Lack of information and seller unwillingness to cooperate at the Due Diligence stage are indeed among the most difficult challenges in M&A transactions. Effective strategies, such as clear terms in the confidentiality agreement and active communication through intermediaries, can help mitigate these problems. It would be useful to hear the experiences of other participants, especially examples where creative approaches or legal tools helped to cope with such situations. In your opinion, are there universal methods for preventing such difficulties at the initial stage of negotiations?
Handling a seller’s reluctance to share information during due diligence requires a balanced approach. First, I would build rapport and emphasize the mutual benefits of transparency, explaining how sharing information facilitates a smoother transaction. If resistance persists, I would identify specific critical data needs, prioritize them, and propose solutions to address the seller’s concerns, such as confidentiality agreements or phased disclosures.
If the seller not willing in DD and steel if the buyer is in need of the target company , it may use indirect method of assessing the information about the company.
– If you ask for example the competitors about the target company they may inform you its strength and weakness.
-The other method may be asking old staff of the company or make them part of DD
– Search of any news on the company, print outs,
-Any legal case it has may be searched from court house
– Any tax information from government office
– We may arrange a negotiator between the target company and the buyer so that the confidence may increase.Focus on building trust through more top-to-top meetings and try to understand the concerns of the leadership and M&A team of the target company.
This is a tricky question, as staff at the target company tends to feel insecure and the acquiring company sometimes views the target company as yet another trophy game instead of equal partners.
Some helpful approaches I see in my company’s M&A process, as responses to this issue:1. Mutual respect at the top leadership and functional leadership levels help ensure the target company staff do not adopt an evasive approach towards information sharing.
2. Kick-off meetings between management teams and regular workshop/seminars
3. Representations and warranty clauses in the SPA helps mitigate the risk of missing out critical issues during the DD process.
Emphasize that due diligence is standard practice and protects both parties by ensuring a fair and successful transaction. Reassure the seller that all information will be kept confidential, supported by NDAs if necessary. Help the seller understand that withholding critical information could delay or jeopardize the deal.
This will happen frequently in my experience especially when you are a large corporation and the company you are looking at is family owned or a little larger and they are not utilizing a broker.
1. Start with your company contact for the deal explaining the situation you are running into and the risks it will pose to DD. They might decide with input from others it is ok not to have the certain information you are looking for at this stage.
2. If you do not have a direct person to work with, explain to the seller the need for the data and why you need to review it for the deal. Many times the smaller company is not comfortable with giving out specific data until check is in hand. They need to be comfortable with you and the reason for the ask.
3. If #1 and #2 are failing you can explain this will impact the deal valuation and lower their buyout or potentially cause you to walk away. This will certainly get them moving in the right direction if their intention is to sell and you have given them a fair multiple.I agree with David, this has happened to me in deals where we were acquiring very small companies. We typically ended up having to escalate to the head of corporate development who leads the negotiations. We will also use lack of information given in (IT) due diligence as a pricing lever as we have to build in additional costs for assuming worst case scenario. This often serves as a motivator for the seller as well.
As a service provider for FDD, we do faced the situation when the seller reluctant to share information especially those confidential ones. We would tried to communicate with the seller side and alternatives proposed, such as we just sight the document but not keeping a copy, etc. IF the communication failed, then we would highlight that as lack of sufficient information in our report to the buyer, which this will affect the result of the deal.
As someone still learning about the process, I understand how critical due diligence is to assessing real value and risk. If a seller is holding back information, I imagine it would raise immediate concerns about transparency and trust. Based on what I’ve studied so far, the buyer’s team would likely need to escalate the issue quickly—either by setting clear deadlines with outlined consequences or even pausing negotiations. I’d also be curious to know if there are softer ways to build rapport with the seller to encourage cooperation without compromising the deal.
I experienced this situation over 10 years ago when I acquired a business through a broker. Unfortunately, I didn’t have my own advisor at the time and allowed the broker to represent both sides – something I wouldn’t recommend! We had an LOI in place and started due diligence, but as I raised questions about the seller’s financials (it was a sole proprietorship), she became very defensive. The broker failed to manage the tension and the seller actually walked away late in the process.
Fortunately, I was able to bypass the broker and schedule a direct in-person meeting with the seller. That conversation allowed me to clearly explain why I was asking the questions, and more importantly, helped rebuild trust and rapport. Once she understood my intentions, we were able to get things back on track and close the deal. As others have said, access to and engagement with the actual decision makers is critical, and sometimes sitting face-to-face makes all the difference…especially for small/mid-market, founder-led, or emotionally charged deals.
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