Preparing for due diligence

What buyers check

A buyer's due diligence usually covers financial matters (quality of earnings, working capital, net debt), tax, legal matters (corporate records, contracts, disputes, licences), commercial matters (customers, market, competition), employment (contracts, key staff, incentives) and increasingly IT and data.

Build the data room early

Gathering records while negotiations are under way is harder. A data room prepared in advance lets buyers check the information quickly and shows the business is well run. A Romanian company typically includes the following records.

• Statutory financial statements and monthly management accounts for at least three years.
• Trade register extracts, articles of association and shareholder decisions.
• A tax compliance certificate and records of any tax inspections.
• Employment contracts and the employee register, with key terms summarised.
• Major customer and supplier contracts, leases and land register extracts for property.
• Licences, permits and any litigation or regulatory correspondence.

Issues that often surface

Common issues include related-party transactions with no documentation of market terms, customer contracts that allow termination on a change of control, unclear ownership of property or intellectual property, and accounting choices that overstate performance.

Resolve what you can and explain what remains

Before selling, you can formalise contracts, put corporate records in order and settle minor disputes. Disclose and explain unresolved issues early. Buyers factor uncertainty into the price. A known issue with a clear explanation usually has less impact than a surprise in the final weeks of negotiation.

Consider vendor due diligence

For larger or more complex businesses, an independent vendor due diligence report gives all buyers the same information from the outset. It can shorten the review and reduce the risk that a buyer seeks a price cut over issues already disclosed.