Professional Services
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How Smart Due Diligence Protected a Buyer from Hidden Risks
The Challenge:
A client was looking to purchase a $4M revenue printing business and needed to ensure they weren’t taking on hidden financial or operational risks. On the surface, the company appeared stable, but a deeper analysis was needed to uncover any red flags before finalizing the deal. Key concerns included:
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High customer concentration – A handful of customers made up the bulk of revenue, posing a risk if they left.
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Declining sales trends – Historical revenue looked stable, but our analysis showed customer budgets shrinking for existing customers, signaling future downturns.
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Payroll and sales tax discrepancies – Potential tax risks that could lead to liabilities post-sale.
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Expiring lease with rising costs – The business was locked into a long-term lease, but it was expiring soon, and renewal costs would increase significantly.
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Relocation risk – If the business moved to a lower-cost location, it would cause operational disruptions and an additional $150K in expenses.
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Our Solution:
We conducted a comprehensive financial and operational due diligence review, uncovering critical risks and negotiating protections for the buyer.
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Analyzed customer base and sales trends – Identified a downward trajectory in customer spending, impacting future revenue stability.
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Uncovered payroll and sales tax issues – Flagged discrepancies that could lead to future financial liabilities.
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Evaluated lease impact – Assessed cost increases and relocation risks, factoring them into the negotiation.
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Worked with legal teams to adjust the deal – Added buyer protections in the purchase agreement, including representations and warranties to safeguard against financial and operational risks.
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Negotiated financial holdbacks – Ensured a portion of the sale price was held in reserve to cover any post-sale liabilities that might arise.
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The Outcome:
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Reduced buyer exposure – The buyer avoided overpaying for a business facing hidden financial and operational risks.
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Negotiated a better purchase price – The insights gained during diligence allowed the buyer to renegotiate more favorable deal terms.
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Structured financial protections – The final agreement included specific warranties and financial holdbacks to mitigate risks.
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Prevented costly post-sale surprises – Factoring in relocation costs and declining customer budgets ensured the business remained a viable investment.
By partnering with us for buy-side due diligence, the buyer was able to make an informed decision, avoid costly mistakes, and secure the deal with confidence.