Due Diligence on Customers & Employees

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March 07, 2022

by a searcher from The University of Michigan - Stephen M. Ross School of Business in Columbus, OH, USA

What have other searchers done when it comes to due diligence on customers and employees? Have you interviewed these stakeholders prior to putting together a purchase agreement and closing the deal? What about independent contractors, if the business heavily relies on them?

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Reply by a searcher
from IESE Business School in Madrid, Spain
Great post. Here´s what I do
First of all, I only ask for this info once I know that I like the company and the owner likes me, plus I think that I have their trust, and usually do not sell LOI until I have some visibility about this as I believe this info can change the valuation.
Clients: record of clients (with names or anonymized) of the last 3 to 5 years by product and/or service > the objective is to be able to know their number of clients, concentration by client, region, product/service, and churn; this is for the quant part, then will come the qual, why is this happening? why have they win or lose certain clients?
People (employees, suppliers): ask as well for the record of employees and suppliers > the objective is to know how many people / suppliers currently work but also what is the trend, their seniority (it is not the same to have a company where key people have been working for a year than another inwhich have been working for a decade, though this changes also come with the growth of the company), their concentration (salaries or expenses), and again churn; just then go for the qual > why are people staying at this company?
Hope it helps
Best!
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Reply by a searcher
from Ludwig in München, Deutschland
Very interesting discussion. I personally believe buying a company is allways a people business in first place - the numbers need to be fine as well of course - but if you do not connect well with the people it will allways be hard. It also depends on the kind of business of course but I do believe that having a first hand impression of the key employees and customers is very important. Quite often its the most important asset you buy in a company. So the time and effort is well spent. You need to know who the key employees and customers are and whether you can keep them - which often largely depends on the personal relationship you can establish with them.
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