By Paul Aversano and Rino Nori of Alvarez & Marsal’s Transaction Advisory Group – Historically, the field work phase of pre-acquisition due diligence was almost always performed on-site and in-person. However, that shifted almost instantly in early March to being performed exclusively on a remote basis following wide-spread social distancing and shelter-in-place protocols.
By Paul Aversano and Rino Nori of Alvarez & Marsal’s Transaction Advisory Group – Historically, the field work phase of pre-acquisition due diligence was almost always performed on-site and in-person. However, that shifted almost instantly in early March to being performed exclusively on a remote basis following wide-spread social distancing and shelter-in-place protocols.
Although it is difficult to fully replace the benefits of in-person meetings, remote due diligence has quickly evolved, allowing transactions to still get done.
Due diligence teams take the following steps which have allowed them to continue to serve and advise their clients, while making health and safety a top priority for the target management teams, their clients, and their colleagues.
Constant communication
Up front, constant communication and coordination with all stakeholders including clients, investment bankers, the seller and target management is particularly important, now more than ever. Due diligence teams work to ensure key questions and concerns of the client are addressed, alternatives to process limitations are worked out, and target management teams maintain focus on running their business during the crisis while addressing diligence requests and questions.
Regular and frequent status calls ensure coordination. These are typically being done by either Zoom, Microsoft Teams, Skype, Slack, and even old-fashioned conference calls for those less web-enabled. This technology gives everyone a very personal “window” into the lives of other meeting participants, as you are literally looking directly into their homes – slightly closing the gap between voice-only communications and in-person meetings.
Robust transaction analytics
Teams access virtual data rooms and analyse the data remotely, similar to the way it was done pre-crisis. However, these “desktop reviews” have emphasised the need for robust transaction analytics to be able to receive, transmit and synthesise the data remotely. Now more than ever, the digestion and interpretation of large quantities of data is important, as it gives investors a potential added angle in their thesis.
Accelerated adoption of technology
Firms are accelerating their existing use of technology, beyond video conferencing, to streamline operations and find creative solutions.
For example, audit work papers are reviewed through online portals and arranged by the target’s independent accounting firm. Although this has been evolving in recent years, the current crisis has accelerated it, and many firms have been working more cooperatively in order to help keep these processes moving.
To assess operations, we have even heard of instances where buyers are using drone technology to visit sites remotely.
Emphasis on efficiency
Target management meetings with CFOs, controllers, and other accounting personnel are performed through video conference and screen-sharing tools such as WebEx. Management teams are provided a list of questions and analyses to discuss in advance, ensuring efficient use of everyone’s time during the meeting. Virtual meetings are scheduled to ensure target management teams can also maintain focus on the other priorities of their business.
More real-time reporting
Teams communicate findings and reporting in real-time to the client through e-mail, phone, and virtual meetings. Given the uncertainty of economic forecasts, clients are slow playing the scope and speed by which due diligence advisors should run at in the early phases of a process, making real-time and informal reporting of key due diligence and valuation concerns even more important. Technology plays a key role in all of this. Tools such as Microsoft Teams, WebEx, and Box allow for real-time communication and collaboration.
Rebalancing work and life
On the personal side, working from your home office brings other types of work-life balance challenges, as those lines have now become increasingly blurred creating both positives and negatives of this “new normal.”
However, while the tactical side of due diligence can be performed remotely, we firmly believe that there is no substitute to spending time with people. From a due diligence perspective, the ability to sit with financial and operational management, look them in the eye, read and interpret body language in order to develop a meaningful relationship cannot be under-estimated. Therefore, while actual travel time and the need to go on site to visit a potential target will likely decrease in the future, we ultimately believe it will not be replaced in its entirety.
In summary, although the current crisis instantly changed the due diligence landscape, advisors were quick to adapt. As buyers chase opportunities in the current environment and negotiate with sellers, they can be assured that the critical step of due diligence can still be performed. Furthermore, due diligence teams can follow similar protocols in working with sellers who are looking to launch a sale process as the crisis subsides and we enter the recovery phase. Due diligence is still being performed and transactions are still getting accomplished.
