How would you normally decide if a full scale DD is worthy, together with expensive DD consultants costs, vis-a-vis limited DD first, and – subject to successful negotiations – follow with a more detailed / confirmatory DD?
To overcome expensive DD consultants costs; DD can be structured in many phases or steps. First part is analyzing overall generic data that can be done in-house utilizing the available capabilities. Then, moving to more detailed DD that rely on one overall DD consultant. Finally, in depth DD phase which of course will involve other depth scope oriented consultants.
Following above DD structure will ensure that buyer will only pay what is needed (Cost Control). Also, it will provide a smooth DD process with buyer as not all books are opened in early phases of the DD.
In my perspective, and in the context of a public listed company where acquisitions reaching certain thresholds (mandating shareholder’s approval), I will go for a Fullscale DD (on the basis that the costs are say less than 5% of the purchase consideration). This will enable the board to “outsource the risk” to these external consultants whereas ensuring that costs are not prohibitive. In the event that the costs are more than 5%, I would consider going for a limited DD, subject to discussion with the external consultants.
Best practices differ especially in the case of big corporations and small businesses. For instance, while big corporations may be able to leverage on technology to screen a lot of firms as well as obtain huge amounts of information for due diligence, these advantages are not available for small businesses. This is given that the small businesses have limited finances as compared to the big corporations. Moreover, there exists a disparity with regards to definition of future states. In the case of big corporations, there exists clear laid out plans and teams that develop strategies on what is the desired state of the entity both in the short and long term. However, for small business, there is limited resources, talent as well as workforce to undertake these obligations.