Crain’s Cleveland Business Newspaper publishes “Extensive, timely due diligence affords buyers latitude on price” article by Managing Director David Dunstan

February 4, 2008

Crain’s Cleveland Business Newspaper featured an article written by Western Reserve Partners Managing Director David Dunstan in its February 4, 2008 issue. The article was titled, “Extensive, timely due diligence affords buyers latitude on price.”

Of due diligence, Mr. Dunstan wrote, “Whether you are engaging outside experts or utilizing your own resources to perform due diligence, you must recognize
that this process is both an art and a science.” He continued by describing the science which, “consists of analyzing the target business and its records in painstaking detail, looking under every rock. This typically incorporates all facets of the business, including financial, operational, legal and environmental matters.”

He wrote that “The process starts with an analysis of the seller’s historical and projected financial statements.” The accountants who manage this process “must see that the company’s accounting policies are in conformity with generally accepted accounting principles and vet the process through which the seller built the forecast and the company’s historical success in achieving forecasts.”

Next, Mr. Dunstan went on to say that the buyer’s lawyers should, “review supplier contracts, customer contracts, employment agreements, litigation files, board minutes, insurance claims and more. What they uncover will help to determine what the buyer should insist on including in the purchase agreement.”

However, Mr. Dunstan noted that an important part of the due diligence process is the responsibility of the buyer himself. He wrote, “The buyer and his or her management team must look behind the financials to understand what is really happening at the company they wish to acquire. There often are two reasons people sell businesses: the reason they tell the buyer and the real reason. Learning the latter is the art of due diligence.”

Finally, Mr. Dunstan mentioned other important factors in due diligence which includes: “coordination of accountants, lawyers, and other professionals,” avoiding seller fatigue, and managing the cultural implications of post merger implementation.