This prior review and ensuing corrective measures by the seller will enable the seller’s various advisers (including investment banks and lawyers) to save time in putting together the information memorandum for potential buyers. The reliability of the information provided will be appreciated by such buyers, who will use it to construct their offer.
The quality of the contents of the data room that the seller will have prepared conscientiously (initially in its own interest), and a reduced number of irregularities (even of minor importance) will attest to the seller’s seriousness and the reliability of the target business, making it all the easier to value the latter
The seller will have the same level of information and analysis as prospective buyers and will be able to provide precise and rapid answers to their questions (the so-called Q&A process).
A prospective buyer will generally require, where possible, that the riskier matters identified be addressed and resolved prior to completion of the sale (as conditions precedent), thereby injecting uncertainty and delaying completion and receipt by the seller of the sales proceeds
By identifying and neutralizing such risks or irregularities before the buyer raises them as a result of its own review, the seller speeds up the sales process and limits the discussions and negotiations that often lead to mutual frustration and discomfort.
Where risks have not been eliminated on completion of the sale, the buyer will negotiate more forcefully the level of contractual guarantees (specific indemnity clauses, increase in the scope of warranties and claimable amounts, security for the seller’s undertakings (in the form of escrow arrangements or third party guarantees, etc.)) and/or the terms of payment (deferred payments, price conditional in part on the future elimination of the identified risk).
For the seller, identifying in advance the main issues that may give rise to discussions on guarantees and/or the price makes it possible to prepare the negotiations and its arguments, and to accept the principle of future discussions
In conclusion, a reasonable investment of time and energy in advance of a planned sale is highly recommended and ultimately profitable