Why diligence is like dating: The importance of a phased approach
Here are four reasons why diligence is like dating – and how you can close the deal.
By AnsaradaThu Jul 16 2020Due diligence and dealmaking, Advisors
Imagine going on a first date.
Now imagine going on a first date where the other person drops to one knee and proposes while you’re still sipping your first glass of shiraz.
It’s impossible to consider such a commitment without taking the time to get to know this person and uncover any deal breakers – like the fact that they already have a partner and 3 children in Canada.
Similarly, in the lead up to a transaction, you know that a ton of relationship-building and investigative work needs to be done. The staging and sequencing of activity is critical, with certain information only disclosed after that trust has been built.
Here are four reasons why diligence is like dating – and how you can close the deal.
As you move through the next stages of diligence, you’re still working to get to know one another and identify any areas of potential risk - like a dodgy tax return, or secret spouse.
As this relationship matures, you eventually move into ‘black box’ diligence – the final gate where you’re ready to divulge your most sensitive information. For example, all your board minutes; the repository for absolutely everything that has gone right and wrong. The diligence equivalent of revealing your list of past partners.
Like dating, diligence is critically a cascade of activity – and your deal workflow follows a similar sequence. This staging of events is vital for companies (and potential partners) to understand what they are in for on this journey as you move along it together.
This is the same with risks in diligence (employee litigation, litigation with customers, etc). All of this information is subject to privilege at the beginning of diligence, but you know there will come a point at which it must be released before it’s considered purposely misleading.
And just like interpersonal relationships, any deception is bound to surface later on down the track to cause problems and disrupt synergies.
Like the dating world, you have to show that you’re working toward the same outcome (whether it be a magical honeymoon or a ‘quick raise’), and be able to evidence the work that will go into achieving those goals.
Being able to lay this out visually in order to monitor progress is a huge advantage (we admit the dating metaphor falls short here, unless you’re particularly methodical in your love life).
Building that trust in the relationship can give you the confidence you’ve seen everything you need to know about the other party before going ahead with the deal – but it must be done in a phased approach to be successful.
This digitized checklist and project management tool has been configured to cascade from one task to another in the lead up to the transaction, outlining exactly what documentation needs to be provided and making progress clearly visible as you move through each stage.
No more bad dates.
Now imagine going on a first date where the other person drops to one knee and proposes while you’re still sipping your first glass of shiraz.
It’s impossible to consider such a commitment without taking the time to get to know this person and uncover any deal breakers – like the fact that they already have a partner and 3 children in Canada.
Similarly, in the lead up to a transaction, you know that a ton of relationship-building and investigative work needs to be done. The staging and sequencing of activity is critical, with certain information only disclosed after that trust has been built.
Here are four reasons why diligence is like dating – and how you can close the deal.
1. There is an accepted sequence of events
So you’re in the first steps of diligence (or ‘handshake diligence’), getting that initial introduction and first meeting of the minds. Where you see some synergies and some nice points of intersection, you make the decision to keep talking. (An immediate turnoff applies to both dating and diligence equally.)As you move through the next stages of diligence, you’re still working to get to know one another and identify any areas of potential risk - like a dodgy tax return, or secret spouse.
As this relationship matures, you eventually move into ‘black box’ diligence – the final gate where you’re ready to divulge your most sensitive information. For example, all your board minutes; the repository for absolutely everything that has gone right and wrong. The diligence equivalent of revealing your list of past partners.
Like dating, diligence is critically a cascade of activity – and your deal workflow follows a similar sequence. This staging of events is vital for companies (and potential partners) to understand what they are in for on this journey as you move along it together.
2. You’re working to uncover any red flags
While you aren’t going to be revealing all your darkest secrets on a first or second date, this type of information would (or should) be made known before a marriage.This is the same with risks in diligence (employee litigation, litigation with customers, etc). All of this information is subject to privilege at the beginning of diligence, but you know there will come a point at which it must be released before it’s considered purposely misleading.
And just like interpersonal relationships, any deception is bound to surface later on down the track to cause problems and disrupt synergies.
3. You’re managing expectations
Corporates can have high expectations. Diligence is hard work - and you know it’s not always easy to show them from your first meeting what this process will entail.Like the dating world, you have to show that you’re working toward the same outcome (whether it be a magical honeymoon or a ‘quick raise’), and be able to evidence the work that will go into achieving those goals.
Being able to lay this out visually in order to monitor progress is a huge advantage (we admit the dating metaphor falls short here, unless you’re particularly methodical in your love life).
4. Integrity is vital
Like dating, diligence requires honesty and integrity. Just like you wouldn’t put a photo from twenty years ago on your dating profile, so you would expect all documentation in the diligence process to be correct and up to date – an accurate depiction of the current state of the business.Building that trust in the relationship can give you the confidence you’ve seen everything you need to know about the other party before going ahead with the deal – but it must be done in a phased approach to be successful.
Everyone wants to close the deal
The Deal Workflow Pathway - free for advisors - is the perfect marriage between you, your team and efficient diligence processes.This digitized checklist and project management tool has been configured to cascade from one task to another in the lead up to the transaction, outlining exactly what documentation needs to be provided and making progress clearly visible as you move through each stage.
No more bad dates.
