What type of information can be trusted in due diligence?
The timing of due diligence is essential to the overall process. Potential issues noted during the process need to be communicated to other team members and decision makers so that the issues can be further investigated or the implications for the transaction can be evaluated before the agreement proceeds to an irreversible stage. Sellers and their advisers routinely tried to require buyers to negotiate a purchase price based solely on public information and a seller-provided information memorandum. Many buyers have made the mistake of investing too much energy in negotiating the purchase terms whereby they tend to limit excessively the scope and timeframe for the due diligence. Sellers seek to control information during the due diligence process by arguing that the published annual reports and disclosures had been reviewed by their attorneys and audited by a major accounting firm. It is important to consider that publicly available information is not always enough and that there are many issues that may not be adequately addressed in a seller-provided information memorandum.