Fighting Diligence Fatigue

Fighting Diligence Fatigue

You’re preparing for a transaction and advisory teams have descended upon you. For months, you’ve been answering the same questions and you’ve gotten tired of hearing yourself talk. Here’s how to prepare for a stream of diligences and fight the fatigue.

The world of mergers and acquisitions (M&A) can be thrilling with promises of potential. Parties come to the table with synergistic energy and mutual interest and then the dance begins. If you’re selling or seeking capital, you will meet with brokers, sometimes multiple suitors, lawyers, and auditors. You’ll participate in a set of due diligence processes which will likely include business, financial, legal, and IT. Your calendar will be booked with interviews and on-site sessions. Your email inbox will be full of questions and daunting data requests that are hundreds of lines long, demanding answers and documentation.

At first the excitement carries you. After all, you get to talk about your company and your passion for it. But after a while, you start to get worn down. There are so many meetings, requests, and people to talk to—and then there are the emotions that come along with negotiations and probing. Conversations break down and walls go up, and you may start to wonder whether the frustration and exhaustion are worth the effort. This is deal fatigue. And it can sometimes be the death of a deal.

If you’ve just started the process, there are activities to minimize the pressures of diligences and reduce the risk of hitting a wall. If you are already in the throes of full-blown fatigue, there are still things you can do. It’s natural to reach this state so allow yourself the opportunity to work through the emotions and find some relief. At West Monroe, we’ve witnessed organizations in various states of preparedness and have even contributed to the exasperation target companies feel due to the rigorous diligence process. Since we’ve been on both sides of transactions, we can share that experience in five actionable ideas to combat fatigue.

1. Get the house in order

If you’re just now considering an acquisition or capital infusion, start by preparing the organization as a whole. During the diligence process, investors will be examining all aspects of your operations and IT systems to determine alignment with their strategic objectives, identify risks and look for opportunities for synergies. Look across your business functions for areas in need of updates or structure. Implement standard processes and perform system updates (and document them along the way). As you perform your own internal assessment, it’s important to be objective but to only execute on what’s critical. You may even consider engaging an outside party to perform a sell-side assessment, which is a diligence sponsored by you to help you understand your current state. These assessments provide you with perspective on which projects to take on based on the value they’ll provide, what buyers will look for, and how much time you have. Getting an objective point-of-view will give you an opportunity to remediate the issues identified or justify the reasons for not doing so before you open the doors for potential investors.

2. Get organized

Going into the diligences, you should be ready for a slew of requests and interviews. It’s part of the evidentiary process. The best you can do is mentally prepare and proactively organize for what will be needed. Start gathering documents such as contracts, spend and budgets, system specifications, and policies and procedures. Most work streams (e.g., financial, human resources, IT, operational) will ask for similar artifacts so collect documents and be ready for all aspects of the process from the beginning to reduce randomization.

Often, the easiest diligences are with target companies who have been through the process before. Whether from a previous transaction or a failed one, they’ve been through the ringer and know what to expect. They leverage previous request lists and interviews to collect documentation and ready participants for the next round of diligences. If you haven’t been through a diligence process before, a sell-side assessment could also work in your favor here. The process is on your terms without additional parties and the stressors of negotiations.

3. Delegate and share the load

Some transactions are confidential and very few employees are aware of deal activities. This puts tremendous workload on the few individuals who are responsible for collecting data and responding to requests. Too often, these are critical executives and the same individuals who are meeting with potential buyers and in negotiations; diligence responsibilities only add to their stress levels.

Bringing in additional people to help with the process may bring much needed relief and structure but measures must be put into place to ensure confidentiality is maintained. “Data room quarterbacks” can organize, filter, and funnel requests to minimize disruption to business operations and deal participants. They also serve as single points-of-contact for both sides to collect and return responses. You may be tempted to bring in temporary, external resources to serve as these quarterbacks but internal employees usually play the role best because they are more familiar with parties who can provide the necessary information. Internal employees just need to be coached and armed with cover stories to avoid raising suspicion when gathering materials from others.

4. Use what you have

If you’re already in the midst of a diligence, you may think it’s too late and you’re far too busy to document existing processes or gather materials. Preparing for a transaction by readying your organization is an investment of your time and should be commensurate with the value. Sometimes stress relief alone is enough to warrant the extra effort it takes to document processes and systems. In other cases, information from other sources and artifacts can be good enough. Some requests can fulfilled by an interview or conversations but those can be exhausting, too. Give what you can.

Granted, the strength of the artifact and your ability to deliver it can be part of the assessment but in other cases it’s the assessor’s responsibility to dig a little deeper and analyze what you’ve provided. It’s okay to push back on requests and ask for more critical prioritization. You may find that some requests, such as financial diligence requests, are non-negotiable but the important part in saving your sanity is having the conversation to find out.

5. Get rest & communicate

An M&A transaction can be an exciting time for your business with the potential for great reward but it’s a tremendous undertaking; it’s important to recognize that and find time to rest. Get sleep. Stay healthy. And find moments to remind yourself of the end-game.
Deal fatigue is a well-known phenomenon in M&A transactions. If you feel you are approaching that wall, share this information with your advisors and potential buyers before it reaches criticality. They’re in it, too, and will work with you to find relief.

The diligence process is meant to identify the areas of opportunity. It may feel as though you are being judged but the intent is to help you scale for growth. It’s through that lens that you can remember to see the other parties in the transaction as your partners not only through the diligence process but also throughout your future together.

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Phone: 312-602-4000
Email: marketing@westmonroepartners.com
222 W. Adams
Chicago, IL 60606
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