A Little Vetting Goes a Long Way

A while back some psychologist came up with a theory that for many of us, our worst nightmare is being caught naked in public.

Now I guess that would all depend on who was being observed sans clothes.

That, I would assume, is like performing a basic pre-due diligence fact check on a potential merger partner and discovering their background more resembles Bernie Madoff than the little unassuming CPA practitioner down the block.

Case in point.

Recently, we were working with a seller in a large Midwestern city and the dialogue between him and who we hoped would be the successor firm was going smoothly until the larger practice ran a search.

The results, shall we say, were rather uncomfortable.

Turns out the practitioner in question had his membership terminated from his state society, in another incident was fined for practicing without a license and was levied another fine by a neighboring state for practicing in said state without an expired license. Somehow the practitioner managed to manipulate the search engine where his name would not appear on the first page of any negative results.

Queue the ice cold bucket of water on the raging bonfire. It was sort of like saying, “Other than that Mrs. Lincoln, how did you enjoy the play?”

Needless to say, the larger firm retreated from the deal faster than a veterinarian at Jurassic Park.

I can’t imagine what would have been uncovered during a full-blown due diligence process.

But we’re getting a little ahead of ourselves.

There is a time to perform due diligence and there’s a time to do a basic vetting search. We always discourage due diligence at the beginning of the M&A negotiations because there are a number of other issues that must align beforehand.

For example, if you go through the painstaking process of poring over financial information and then at the signing, the two firms realize that their vision for the affiliation is completely different, that’s a colossal waste of time and energy.

Let’s face it, entering into a merger – much like a marriage – is an exciting time and if everything falls into place, it will hopefully last.

But by the same token, there are too many avenues of online research available in addition to the basic Google search at your disposal to do a pre-meeting check.

Because no one wants to be – if you’ll pardon the bad pun – “exposed” at the 11^th hour.