how to select a due diligence consultant

7/27/2019 How to Select a Due Diligence Consultant

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8/12/13 How to Select a Due Diligence Consultant - Selecting a Consulting Firm - Astute Diligence - Chicago, Illinois

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August 12, 113

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How to Select a Due Diligence Consultant

Some of the benefits of using outsourced due diligence consultants include access toexperience, expertise and objectivity. Good due diligence companies can help youmake better business decisions, protect you from liability, and increase yourtransaction success rate. But how should you go about selecting a due diligence firmthat does the job for you?

First Things First

Before you get started, take some time and define the role of due diligence within

your organization and what you hope to accomplish. Make a list of specific objectivesyou'd like to achieve and how you envision the relationship with your consultant. Thatwill help to drive the search for a trusted due diligence consultant.

Should You Work With a Big Organization or a Smaller Boutique?

Does size make a difference?

Here's our take on it. Size doesn't matter. Performance matters. Ability matters.Knowledge of specific industries and technologies matters. Connections andrelationships matter. Experience matters. Dedication, devotion and passion matter.

In short, you want to engage a consultant that gets the job done at a reasonableprice and adds value beyond your expectations.

Key Concepts to Keep in Mind

When selecting a due diligence consultant, keep the following things in mind:

Look for Multi-Functional Expertise. Here's a recipe for disaster. Use one firm fortechnical due diligence, another for logistics due diligence, and yet another forfinancial due diligence. By parceling out the work, you'll limit the "world view" of yourconsultants to a very narrow field of vision and greatly limit their ability to get the bigpicture and identify the most important issues. Instead, pick a firm that has multiplepractice areas and is deeply experienced in each one.

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Consider an End-to-End Provider. Post-transaction integration planning starts duringdue diligence. Given the intimate knowledge that your due diligence team gains fromits work, it's a no-brainer to involve them in post-transaction integration planning,which is critical for success. Accordingly, pick a firm that not only does due diligenceconsulting but also can form, implement and accelerate a comprehensive post-transaction integration plan that will ensure your business goals are achieved.

Be Wary of Conflicts of Interes t. Certain firms may have a conflict of interest and youshould be wary of this. An accounting firm that pe rforms due diligence consultingwork, for example, may want a transaction to proceed because they will get auditing

work if it does. Pick a firm that is completely, totally and unequivocally objective.Avoid "Casual" Due Diligence Consultants. Some firms may profess to do duediligence consulting but it isn't something they've dedicated their professional lives tomastering. For example, a law firm may review contracts for you but may not have thespecific industry or bus iness knowledge to properly identify critical due d iligenceissues. A systems integration firm or research organization may opportunisticallyannounce they have a due diligence practice to create a new revenue stream withoutever really understanding what it takes to do due diligence well. Pick a firm that isdedicated to achieve operational excellence in the area of due diligence.

Secure Long-Term Relationships With Your Consultant. The ultimate consultingrelationship is a highly productive one , in which there are no inefficientcommunications between you and your consultant and there is an implicit

understanding of and trust in each other. Hence, when you do find a good consultant,nurture that relationship for the long term so that your due diligence efforts areconstantly excellent.

Finding the Right Firm

First, go back to your specific objectives for due diligence. That w ill translate directlyinto requirements for the consultant. Understanding your needs will help you to findthe right firm.

Find the bes t due d iligence consu lting firm by thinking about o thers in your industrywho you admire. Who has a reputation for doing phenomenal transactions? Find outwho they use for due diligence. Ask your friends and business colleagues whom they

think highly of.

Preparing for the Meetings

Arrange for meetings w ith the due diligence consulting firms. Share your objectiveswith them before you meet with them. Then see how well they tailor theirpresentation to you. The best firms are always thinking about you, not aboutthemselves. If they come in and generically toot their horns about themselves butnever give any sign that they've researched your business and your transaction, withan eye to meeting your objectives, that's a very bad sign.


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If you are evaluating multiple consu lting firms at the same time, inform them of theircompetition. They often w ill give you some insights on the ir competition. Take thoseinsights with a grain of salt, and give high marks to those who take the high road anddon't disparage their competition.

Some other words of wisdom on soliciting firm presentations include:

Provide the firms with relevant background materials. If necessary, have the firmssign a non-disclosure agreement.

Be sure to s chedule the presentations within as short a timeframe as possible so youcan compare and contrast them better.

Let the firms know who the decision-makers are within your organization and be surethey attend a ll presentations.

How Can You Tell Who Will Perform Well For You?

Getting a sense for who will deliver the goods isn't rocket science. After you've metwith the consulting firm, you get a sense for their breadth of practice areas, abilities,service levels, and professionalism.

In general, you want smart people working for you. If they don't think strategically

and impress you with their expert-level understanding of your business and yourindustry, cross them off the list. The good ones will raise issues or ideas that youhaven't even thought of yet.

Beyond that basic intelligence criteria, look for people with passion, who work aroundthe clock, and who can communicate we ll.

How Formal Should the Evaluation Be?

This is a matter of personal preference. You may want to formally evaluate and scorethe consultants against a checklist or, if time is of the essence (which it usually is),you may want to go with your gut after thinking through a few key questions. Dotheir people seem to be of high quality? Is there a good cultural fit betwe en the twoorganizations? Do they impress you? Have they done good work for other clients? Do

they seem to have the right number of resources available to service you well?

Making the Decision

Talk it through and make a de cision.

Avoid analysis paralysis. The longer you don't have a due diligence consulting firm upand running, the more you risk missing out on discovering important information thatcould affect whether you pursue the transaction or influence negotiations. In aperfect world, when a new transaction materializes, you have the relationship inplace already and start-up lead times are close to zero.


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The Paperwork

Getting the most out of your due diligence consultant often hinges on the relationshipyou formally craft in the ag reement.

It's tempting to do a one-off agreement. But the record indicates that you'll get bestresults w ith a longer-term contract. That's because the due diligence firm knows you'llbe w ith them for a while and, frankly, that means a lot to them. They'll invest moreresources and more effort if it's a long-term marriage rather than a short-term blinddate. They'll assign their best people to your account on a dedicated basis.

Here's what we recommend. Commit to a certain number of consulting hours over thecourse of a year-long contract. Make sure that you get a better rate for havingcommitted to giving the company some guaranteed work.

Final Words

Follow the approach outlined above and you'll find a great due diligence consultant.You'll find it's worth the e ffort as you'll soon find good transactions more eas ily, avoidproblem deals, craft better deals, conduct better post-transaction planning, and see ahigher success rate that will ultimately translate into fewer sleepless nights for youand increased ROI for your key stakeholders.

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