Sell-Side Due Diligence: The Smart Way to Get Ready and Be Prepared for an Upcoming Transaction!

Being prepared and ready for a potential deal as a digital infrastructure seller or when raising funds can add substantial value. Sell-side due diligence provides an outside-in view, offers additional input to support and challenge your valuations, identifies potential risks and solutions, and helps set a narrative that potential investors or acquirers can buy into. One of the most significant benefits is the confidence and time efficiency it provides.

While it’s common for investors to conduct buy-side due diligence to better understand the business, its potential, and its risks, sell-side due diligence is less common, especially in the North American market. However, I see immense value in this approach, particularly for digital infrastructure companies such as fiber networks and data centers.

Due diligence can be a stressful period for companies, consuming time and resources as teams compile information for potential investors and acquirers. It can feel daunting and repetitive, especially when multiple suitors request similar information at varying times. The challenges can seem overwhelming, and responding confidently to these suitors is critical.

Explaining the business to potential buyers also requires time and a distinct approach. Owners and their teams typically hold a vast amount of institutional knowledge that must be communicated clearly to help potential suitors make informed decisions.

I believe that enlisting external support for due diligence preparation can alleviate some of these challenges. This approach concentrates efforts and resources more efficiently, potentially freeing up resources in the long term to continue normal business operations.

In addition to resource efficiency and allowing teams to focus on running the business, the following benefits add value:

• Expert Guidance: Sell-side due diligence helps the seller structure and focus efforts by providing expert guidance, preparing them for the buy-side due diligence process.
• Data Collection Efficiency: By front-loading the data collection phase, companies can prepare a complete data room from the start, minimizing repetition.
• Process Acceleration: Typically, buy-side due diligence involves multiple buyers evaluating a single seller, multiplying the effort, time, and resources needed to provide each with the necessary attention. Sell-side due diligence transforms this into a structured, single-seller-to-multiple-buyers process, optimizing effort and resources.
• Independent Insight: An external, independent view can challenge assumptions and forecasts in the same way that a potential acquirer or investor would. This can help the seller communicate these points upfront, potentially saving time and reducing iterations.
• Valuation Clarity: With a good independent advisor, a company can better understand its valuation, reducing the need for back-and-forth negotiations with buyers or investors.
• Effective Communication: External advisors can prepare documentation, information memorandums, and business cases that the buyer can understand easily, adding clarity and depth while remaining concise.
• Risk Identification and Mitigation: A seller may uncover additional risks or, at the very least, be better prepared to highlight potential mitigation efforts.

Conducting due diligence upfront with advisors before entering the selling process can instill confidence, improve structure, and enhance the seller’s credibility with buyers.

Sell-side due diligence should not replace buy-side due diligence; each investor should still form their own opinion of the business. However, it should be part of the overall process, supporting buy-side due diligence in a structured, prepared manner.