The confrontational nature of Due Diligence
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In Singapore, there are plenty of small deals that take place with cursory due diligence, without going in depth into key areas. One of the areas that are often glossed over is that of commercial due diligence. While data on businesses and industries in Singapore is readily available and clean, there remains many target companies which will deliver a story reminiscent of the dot-com era where commercial projections are taken way above realistic figures. Singapore is home to quite a few digital platform giants, including Grab and Garena brands like Secretlabs and Razer. Following their trajectory in terms of projection is often the norm, but upon due diligence process being carried out, it is often the case that such assumptions are challenged. This often results in a marring of a relationship between the buyer and seller right from the start.
Is this common practice everywhere?
I think this will differ from region to another and from industry to another , however proper due diligence should uncover such risk.
I believe that we have the capacity to be direct without being rude or abrasive.
I.e. Seek their permission to ask more in-depth questions about their business before jumping into the main points “Can I have your permission to discuss further about some of your business practice?” or “Can I have your understanding on why you would assume that your projection is going to do well in the next 2-3 years?”
I hope this helps!
Apart from the seller providing due diligence materials, representations (or the lack of) could perhaps be included as warranties in the sale and purchase agreement for better buyer protection?
As well as the use of Warranty and Indemnity (W&I) insurance to provide cover for losses arising from a breach of a warranty and indemnity claims, as well as having independent third parties (i.e. insurer/underwriter) to seek further information from the seller during the underwriting process – which indirectly benefits the buyer.
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