Part 2: What sellers need to know about due diligence in mergers and acquisitions
To read our article on the Today’s Medical Development Magazine website, click here.
How sellers should prepare
It’s safe to say you’ll be asked lots of questions during your acquisition process. It may seem daunting when looking at all the pieces you need to pull together to ensure the process goes smoothly. What’s the best way to prepare? We believe the most important thing you’ll do in preparing is to assemble your deal team. No deal is successfully handled by one person (even the CEO or founder. In the midst of a transaction, you also need to run your business. You’ll need help. Your internal champions will be key. You and your CFO will undoubtedly be integral, but who else within your company can assist? HR, Ops, and Quality team members can pull together documents ahead of time and answer questions during the diligence phase itself. Your external team will also be key. Legal counsel with mergers and acquisition (M&A) experience, tax advisors and accountants, and M&A advisors will help keep your interests protected and support you in getting the best valuation. In building your deal team, you can give yourself confidence in being able to get the stakeholder outcome you expect to achieve.
Common pitfalls for medtech sellers
Whether you plan to sell now or in 10 years, there are some things you can prepare for a successful due diligence – starting with organization. Disorganized documentation can be a roadblock. If data is scattered or incomplete, it shines a negative light on your company. This could be unresolved legal matters, outdated regulatory filings, unclear ownerships of software or patents, or corrective and preventive actions (CAPA) or audit findings that haven’t been addressed. As we mentioned previously, get your ducks in a row before getting to diligence with the buyer! You’ll thank yourself later. We also recommend when the process is underway, being upfront about known issues with your advisor is best. A surprise discovered deep in the process can derail negotiations, and many issues can be worked through so long as they are presented in a timely and coordinated fashion.
As a business owner, you’re aware of the value proposition of your business. When it comes to due diligence, ensuring this value proposition survives the M&A process can’t be overstated. Positioning your team as strategic and deal-ready displays eagerness in facilitating a productive process and is a fantastic impression to make. It can lead to higher valuations, a reduction in the likelihood of price adjustments, and can improve the odds of hitting earn-out milestones post-close (if that becomes part of your deal structure). Not to mention being prepared can lower the risk of deal collapse. Momentum can kill a deal, but momentum can also propel a deal forward. In being prepared, you’re giving yourself and your stakeholders the opportunity to accelerate the timeline to close – something you and the buyer will undoubtedly appreciate. Perhaps most importantly, being prepared increases buyer confidence and trust in you, your business, and the possibilities for the future.
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In summary, if you’re a medtech founder or executive preparing for an acquisition, treat due diligence as more than a compliance exercise. View it as a test and an opportunity to show the true value proposition of your company. By preparing thoroughly and approaching it with transparency, you set the tone for a successful exit and position your company as a high-quality asset in the competitive M&A market. Work closely with your deal team, anticipate tough questions, and turn due diligence into a pathway to a successful and rewarding exit.
About the author: Estelle Black is the business operations director at MedWorld Advisors. Through her leadership in pre- and post-LOI diligence activities, she facilitates M&A execution at MedWorld Advisors. Value = Strategic Fit + Timing® is a registered trademark of MedWorld Advisors.
To read our article on the Today’s Medical Development Magazine website, click here.