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5 Common Questions About Due Diligence

August 2, 2011 By Sozo Staff

Due diligence can be as intimidating for a buyer as it is for a seller. While the seller is the party being audited, it is the buyer’s responsibility to determine whether the transport business for sale is ultimately a wise purchase. Performing a fair and thorough due diligence is in the best interest of both parties.

What Is Due Diligence?

Due diligence is a period of time, usually several weeks, in which a buyer investigates and evaluates a transport business for sale to verify the company 1) has been portrayed accurately and 2) will be a good fit for the buyer. This involves reviewing all available information, including financials, legal history, structure, operations, and employee policies. Often the process is assisted by interviews with the seller’s accountants, attorneys, and other hired professionals.

Why Is It Necessary?

Done correctly, the due diligence process can prevent both parties from wasting valuable time and resources on a deal that is not going to happen. A successful DD will provide the buyer with a clear understanding of the state of the business, the potential for the business, and whether it is priced fairly.

How Will Confidentiality Be Maintained?

One of the most sensitive steps of due diligence is investigating customers, suppliers, and employees. Buyers will need to examine customer contracts and supplier lists and may want to interview customers, landlords, or employees. However, tipping off key players to the potential for a sale can disrupt business and weaken competitiveness – not a good thing for the seller or potential buyer. For this reason, due diligence usually occurs after a semi-binding letter of intent (LOI) or term agreement has been made to protect confidentiality.

What Risk Factors Should the Buyer Look For?

Keep an eye out for red flags during your due diligence audit. Has a company had many owners, each for a short period of time? Has the business been involved in past legal disputes? Is there any litigation pending that may affect future operations? Does the transportation business for sale have a good relationship with suppliers? Is there an underlying reason why the owner is selling a trucking company? These types of unresolved issues have the ability to impede business operations and turn your investment into a disappointment.

Who Is Responsible For Undertaking Due Diligence?

While most of the focus of due diligence falls on the seller, both parties are ultimately responsible for the success of a transportation business sale. Part of due diligence requires that a buyer look inward to determine whether he or she has the experience, vision, and financial backing to make the company successful. While there is no guarantee a transportation business will thrive under new ownership, obtaining all possible information will provide the buyer with a significant advantage and prevent unpleasant surprises from popping up after the purchase agreement is signed.

Filed Under: Transportation

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