Dr. John Psarouthakis, Founder and former CEO, JPIndusries,Inc., a Fortune 500 industrial corporation. Publisher of www.BusinessThinker.com
This article covers the letter of intent, which should be negotiated and signed prior to the start of formal due diligence and the formal due diligence process itself.
The most extensive and expensive investigation of a company lead takes place during the formal due diligence. Formal due diligence can be viewed as the fourth filter through which company leads pass. Because of its expense, you should probably plan to complete formal due diligence on a company you are fairly certain to buy. Sometimes the process of negotiating the letter of intent itself weeds out some candidates that looked good after preliminary due diligence. Or you may uncover information during the formal due diligence that you were not aware of during the preliminary due diligence phase. It is likely that during the 18 month to two year period that you scrutinize company leads, if about two dozen leads get subjected to a thorough preliminary due diligence, only four or five will actually follow through to formal due diligence. Some will drop out during the preliminary due diligence phase itself. Other company leads might drop out because buyer and seller are unable to agree on terms in the letter of intent.
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Reference: “How to Acquire the Right Business”
John Psarouthakis & Lorraine Uhlaner
Published by Xlibris, 2009