The “buyers have every right to dig deep” statement rings true, but lacks nuance.
On large deals, institutional investors will spare no expense. CYA dynamics all around. Hire Bain PEG for stamp approval before the IC mtg, never mind the $3m price tag for a 5-wk project. The deal is >$1B, so what’s a few millions back or forth on DD. Nobody will be fired for asking too many questions. KPMG and other vendors can go to town with excessive request lists across HR, benefits, insurance, legal, tax, QoE, ops, marketing, software, etc. Nobody will stop them or ask whether it’s all necessary. It’s the opposite of efficient. Despite this thoroughness, failure rate for larger PE deals isn’t zero. In fact, returns are lower than in the LMM, because the deals are more expensive due to lower perceived risk. How about that.
On small deals there is no multi-department executive team to field never-ending DD requests. In some cases it might be just the seller, who by the way is still running the company too. You’re trying to build a partnership & trust, where some DD requests may signal a total lack of care (“Monsieur Insurance, I already told legal and HR that we don’t offer self-funded healthcare plans for our 19 employees”). As a buyer your best bet is to understand what you’re buying, be an industry expert, don’t buy healthcare if you’re from SaaS, etc. The incremental data request from your umpteenth advisor won’t uncover the kill shot; that’s on you. 80/20: QoE, legal DD, strong R&Ws, plus check the big boxes on IT, insurance, and tax. Honestly, don’t submit an LOI if you don’t know what you’re buying, and if they sign it treat the next 3+ months as a verification, not a gotcha steamroll exercise.
