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How to Select a Due Diligence Consultant

Written By Admin on Monday, 10 December 2012 | Monday, December 10, 2012

Due diligence may be done by your house staff or can be outsourced to a consultant having expertise in due diligence and corporate investigations.  One gets the benefit of experience, expertise and objectivity when work is outsourced. A good due diligence consultant can help you make better business decisions, protect you from liability, and increase your transaction success rate. But first you have to select a firm that understands your requirements and can handle the job right.

The most important thing is to make sure that first the organization defines its expectations from the process of due diligence. Once the objectives are clear it will be easier to communicate it to a prospective consultant.

Size of the consulting firm
The size of the consulting firm doesn’t matter. You should look into experience, ability, knowledge of specific industry and technology. And then decide whether the firm’s staff is dedicated and passionate about your objective. The consultant who is on the same wavelength as you and does a good job at a reasonable price is the one for you.

Multi-Functional Expertise
Try to pick a firm which has expertise in multiple fields so that they can give you the big picture and unearth inter functional issues. If you use one firm for technical due diligence, another for logistics due diligence, and yet another for financial due diligence, then they will have a very narrow field of vision and greatly limit their ability to identify the most important issues.

Consider an End-to-End Provider
Post-transaction integration planning starts along with due diligence exercise. Given the intimate knowledge that the due diligence team gains from its 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 diligence consulting 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 Interest.
Certain firms may have a conflict of interest and you should be wary of this. An accounting firm that performs due diligence consulting work, 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 due diligence consulting but it isn't something they've dedicated their professional lives to mastering. For example, a law firm may review contracts for you but may not have the specific industry or business knowledge to properly identify critical due diligence issues. A systems integration firm or research organization may opportunistically announce they have a due diligence practice to create a new revenue stream without ever really understanding what it takes to do due diligence well. Pick a firm that is dedicated to achieve operational excellence in the area of due diligence.

Secure Long-Term Relationships With Your Consultant.
The ultimate consulting relationship is a highly productive one, in which there are no inefficient communications 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 the due diligence efforts are constantly excellent.

Prepare for the Meetings
Arrange for meetings with the due diligence-consulting firms. Share your objectives with them before you meet with them. Then see how well they tailor their presentation to you. The best firms are always thinking about you, not about themselves. If they come in and generically toot their horns about themselves but never give any sign that they've researched your business and your transaction, with an eye to meeting your objectives, that's a very bad sign.

If you are evaluating multiple consulting firms at the same time, inform them of their competition. They often will give you some insights on their competition. Take those insights with a grain of salt, and give high marks to those who take the high road and don't disparage their competition.
Finally, some words of wisdom on soliciting firm presentations:
  • Provide the firms with relevant background materials. If necessary, have the firms sign a non-disclosure agreement.
  • Be sure to schedule the presentations within as short a timeframe as possible so you can compare and contrast them better.
  • Let the firms know who the decision-makers are within your organization and be sure they attend all 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 met with 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. The good ones will raise issues or ideas that you haven't even thought of yet. Beyond that basic intelligence criteria, look for people with passion, who work around the clock, and who can communicate well.

How Formal Should the Evaluation Be?
This is a matter of personal preference. You may want to formally evaluate and score the 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. Do their people seem to be of high quality? Is there a good cultural fit between the two organizations? 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 decision. Avoid analysis paralysis. The longer you don't have a due diligence consulting firm up and running, the more you risk missing out on discovering important information that could affect whether you pursue the transaction or influence negotiations. In a perfect world, when a new transaction materializes, you have the relationship in place already and start-up lead times are close to zero.

Getting the most out of your due diligence consultant often hinges on the relationship you formally draft in the agreement. It's tempting to do a one-off agreement. But the record indicates that you'll get best results with a longer-term contract. That's because the due diligence firm knows you'll be with them for a while and, frankly, that means a lot to them. They'll invest more resources and more effort if it's a long-term marriage rather than a short-term blind date. 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 the course of a year-long contract. Make sure that you get a better rate for having committed to giving the company some guaranteed work.
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