I was surprised when I saw the survey of Q2 2021 buy-sell deals and its ranking of due diligence items given IT was at or near the bottom of every list (deals sorted by size). I can’t remember when I saw a selling company whose hardware, software, licenses, and cybersecurity were all up-to-date and adequate.
I tell business buyers to figure they will have to invest in IT sooner versus later and to immediately check out what cybersecurity measures are in place. I’ve had clients have an employee almost fall for the fake wire transfer scheme, have a ransomware attack, and we all get phishing type emails multiple times a day.
What was at the top of the lists was employees, which is where it should be. All one has to do is look at a business publication to realize the employee market is in turmoil for many, many industries. It comes back to, can a company attract and retain great people, with an emphasis on retaining (in today’s market)? It can be a balancing act and the employees have more options than ever now.
Customer concentration was near the top, again, where it should be. This issue will never be minimalized. What I expect will move up the list in future quarters is suppliers and supply chains. There aren’t too many owners and execs I’ve talked to recently who aren’t experiencing or worried about their supply chain. And constant price increases including retroactive price increases on orders placed but not shipped. Wow! The customer ordered it at a fixed price based on the current supplier price, there’s a backlog from the manufacturer, they’re raising the price, and seller to the end user eats the increase.
Finally, the lease. Jessica lost a deal because the landlord wouldn’t offer a long enough lease on a location driven business. With the skyrocketing real estate market in the Puget Sound and other areas there’s a good chance the buyer will pay more, sometimes much more, than the seller has been paying. This has to be factored into the valuation.
Five diligence areas above, all equally important, and all more important than ever given the market turmoil we’re experiencing with people, products, and real estate.
“A people that values its privileges above its principles soon loses both.” President Dwight D. Eisenhower
Inadequate Technology Will Bite You Big Time“More and more we are into communications; and less and less into communication.” Studs Terkel