Are 3rd Party Due Diligence Services Really Necessary?

by a searcher from Northwestern University - Kellogg School of Management

2 years ago

I've seen some wide ranges on what a searcher should expect to pay for due diligence on smaller deal sizes ($1M-$5M deal range). Looking for anecdotes where making an investment in 3rd party due diligence paid off for you. I'm of the opinion that, as a prospective buyers, you should be intimately aware of all financial/legal/technology details of the target company and by paying a 3rd party to do this tedious work you are 'cheating' yourself of that knowledge. What am I missing?

Keeping anonymous because I am not ready to broadcast my intent to search.

4 likes
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49 comments

investor from Columbia University - Columbia Business School

These targets don't have audited financials. If they did, the financial DD could be done by the buyer. In addition to legal, as noted above, there are other areas like employee/payroll matters, insurance, regs (depending on the industry) which make a 3rd party DD provider important.

1 month ago | like reply | 0 likes

searcher from INSEAD

For me FDD is a must, legal DD also, but scope can vary. Commercial/strategic DD is a question mark - on one hand it's an area that you really want to get stuck in as a potential owner and also many times a 3rd party won't have anymore insight into a particular sector than you doing your own homework, but sometimes can make sense if it's a well researched market your target is active only in a specific niche (for example I'm looking at a specialty textile company at the moment and considering whether I should get some external help)

6 months ago | like reply | 0 likes

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