Due diligence tips for sellers, part II of II.(Mergers, IPOs, and Venture Finance: Equities)

Fourth, in-depth due diligence is time consuming; begin this formal process only after the general terms of a transaction have been agreed in writing--for example in a non-binding Letter of Intent (LOI). As negotiations draw close to an LOI, sellers should begin compiling information needed in due diligence. A seller should ask the buyer for a formal "due diligence checklist" immediately after executing a LOI.

Fifth, respond promptly to the buyer's due diligence request with a complete and orderly set of documents. Organize and index the information to correspond with the outline of the buyer's checklist. Sellers gain great credibility and give buyers much comfort about the quality of the business when their due diligence responses are organized, detailed, and complete. Conversely, inaccurate, incomplete, and disorganized responses cause a buyer concern because the potential risks related to buying your company cannot readily be identified and assessed. That concern may result in a reduced purchase price, more onerous terms, broader indemnification provisions, greater ongoing liability for the seller, or even a failed transaction.

Sixth, don't hide anything during due diligence, and instruct employees who are involved to be open and helpful. If the buyer requests highly sensitive information that could be injurious to your company if the deal falls through, consider ways that can satisfy the buyer's "need to know" yet protect your company. For example, if the buyer wants to review highly proprietary source code, you may wish to engage a mutually satisfactory third party and jointly agree on their mandate to provide the buyer with info they need. The scope of the due diligence checklist can be negotiated to meet the needs of both parties.

The due diligence process can seem daunting to even the most seasoned veteran of M&A. As with most areas of facilitating a successful transaction , planning and readiness is key.

Mark Reed, senior vice president, Corum Group, 10500 NE Eighth St., Bellevue, Wash. 98004; 425/4558281. E-mail: mreed@corumgroup.com.

 Company/Description         Acquired by                    Price/Terms  CSG Systems (CSGS)          Comverse Tech.                $251,000,000   * Billing Systems         (CMVT)                     Terms: All cash     Software Busin  JobKorea.co.kr              Monster Worldwide              $94,000,000   * Online Recruitment      (MNST)                     Terms: All cash     Web Site in South     Korea  Captiva Software (CPTV)     EMC (EMC)                     $275,000,000   * Input Management                                   Terms: All cash     Software  Company/Description                    Revenues               Multiple  CSG Systems (CSGS)                 $167,000,000                   1.50   * Billing Systems     Software Busin  JobKorea.co.kr                      $15,000,000                   6.27   * Online Recruitment     Web Site in South     Korea  Captiva Software (CPTV)             $73,100,000                   3.76   * Input Management     Software