Skipping DD
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Have you ever faced the situation when the buyer offered to skip the whole DD process and instead to give them full indemnity in the amount of the purchase price?
From across the table, I have had situations where my buyside client chose to have very focused DD, mainly on the key commercial matters. But from your standpoint (on the sellside), I do not see how full indemnity can make sense, because there’s huge uncertainty for the seller on the outcome of this whole transaction.
Not advisable to skip due d even with full indemnity. It may incur invisible non monetary damage (i.e. reputational) and/or undertake internal resources to make it work. Better to operate on a buyers beware with due diligence process.
My lens is biased from a technology perspective, but if you are buying any sort of company that’s offerings depend on technology somehow (which should be most everyone nowadays :)), skipping due diligence is especially dangerous. It’s easy to package a product to look sexy, but if you don’t know the tech debt, security risks or modernization (or lack thereof) of the product/platform, you don’t have enough information to value what you are buying.
This seems to happen in highly competitive, fast-moving transactions. It is still quite risky even if indemnity is offered by the buyer in return. A suggestion to mitigate the risk could be to insist of a escrow or bank/parental guarantee.
Yes, I worked in a company that acquired few months before my arrival another business. As soon as I started I relize that no real DD was done and the real value of the company was way less than it was calculated.
Not only this but also there was a huge insolvency problems that casued the decision to shut down the business in less than one year
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