As a seller, do not get involved in exclusive time windows if possible. Many professional company buyers, especially private equity companies, have learned from investment banks and try to shake off other bidders during an exclusive phase, which is then often extended, in order to then drastically reduce the offer price, allegedly based on findings from the due diligence process. To prevent this from happening to you, try to continue discussions with several bidders in parallel until the contract is signed.
Example: The managing director of a cardboard processor with several operating sites, which was active in an attractive niche market, unexpectedly became seriously ill. He was aware that he was the driver of his business activities. So he decided to sell his group of companies at short notice in order to protect his staff and his family. The company seemed very attractive. After a short time, there were many inquiries and several relevant bidders. One of these bidders, an institutional private equity company, pointed out the high effort associated with due diligence and asked for exclusivity during the upcoming due diligence process. The shareholder agreed. However, the due diligence was then massively delayed by this bidder, while he demanded multiple extensions of the exclusivity. After the second extension, the shareholder “under cover” continued the dialog with the other bidders and also conducted negotiations with them. The private equity company waited until shortly before Christmas and then massively lowered its offer – trusting that the seller would have no other option than to accept in view of his health situation. In the meantime, however, negotiations with another bidder were conducted to such an extent that a contract could be signed two weeks later.
The more carefully the information for a due diligence is prepared and compiled by the seller, the smoother and more efficient the due diligence will be. A fluid due diligence process shows professionalism, creates a good atmosphere between seller and buyer and favors an advantageous contract conclusion for both. The longer due diligence takes, the more time a seller gives prospective buyers to look around the market for alternatives. Sellers and buyers should take advantage of the momentum created by the start of due diligence.