Top 4 Considerations for M&A Due Diligence in the age of COVID-19

Due Diligence has always been a daunting task even for the best deal makers. With travel restrictions and closed borders, due diligence procedures for both the buyers and sellers have drastically changed. 

Here are four considerations for Due Diligence in the age of COVID-19:

  1. Leverage Virtual Tools – Due Diligence processes are sensitive and must be handled in a confidential manner. With most employees working from home, one must ensure that everyone has access to all the documents in a secure manner. Virtual Data Rooms (VDR) are a great option as it allows data protection and access to control panels. It is highly recommended to use a dedicated VDR system that is carefully structured and organized.
  2. Identify the New Normal – There is no one-size-fits-all approach. Every company is in a different position. For many companies, historical information may not be that helpful as there is an increased need for forward looking information. The key focus should be to understand the “new normal”. Current EBITDA trends must be compared with the Pre-COVID numbers, as current data may not be representative of historical financial performance nor indicative of future results. Comparing the EBITDA trends of the company with its peers will also be helpful.
  3. Real-time Data – Now more than ever due diligence must evolve from the standard playbooks of industry reports to real-time data. Since industry projections made before COVID may seem irrelevant, one must closely monitor current demand and supply trends. Analyzing data streams that provide location specific data, web traffic patterns, etc. can be real-time indicators in this dynamic environment.
  4. Tax Implications – Special attention needs to be given to tax implications. Your target company may have received a PPP loan (Paycheck Protection Program). Ensure eligibility requirements are met and consider the tax implications. Any regulatory failure from the target company could lead to significant liabilities for a buyer in the future.

Bonus Tip – The sellers should invest in pre-sale due diligence. This will give the buyer a better understanding of the sellers’ pre-COVID performance and help plan for an uncertain future.