I recently concluded a transaction on behalf of a client (searcher turned operator rolling up a competitor). My role in the process was to manage the due diligence process from LOI to close. The client enlisted my assistance relatively late, about a week after signing the Letter of Intent, and had already arranged for third-party diligence providers (technology, personal/business background checks, and customer diligence, etc.). Fortunately, he requested my input on the contracts before finalizing them, and I discovered that the costs associated with the services were significantly higher than the market rate. Through negotiation and by bringing in trusted providers, I managed to save the client over $60,000 in transaction costs. This kind of situation is not uncommon, and the savings are not exaggerated, as they have been even higher in other deals.
The lesson to be learned here is the importance of having someone who understands the typical market costs of diligence and possesses established relationships with service providers. Many providers tend to inflate their prices when it comes to M&A, often doubling or tripling the usual rates. While you may be hesitant to spend on a transaction/diligence advisor and manager, it is worth considering having an active investor or a trusted guide who can provide an additional set of eyes. Another crucial aspect is obtaining multiple bids for the required services.
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