"Today, the balance is shifting towards sellers after the long reign of vendors"

How has the time issue changed the due diligence process and the market players' behaviours?

The competition in auction processes had reached a peak before the economic turmoil. The market witnessed growing competition for auctions that were increasingly tightly run. If you were not quick enough, you would just miss the deal. Today, vendors allow more time to potential buyers, because sellers are more compelling and will be reluctant to make an offer if they are not sure about the target company. Also vendors are more flexible because both the number of bidders and targets are reduced.

In the EUR20-50m deal size market, private equity houses go in as late as possible for due diligences and only when they have a good feeling they will win the deal will they start to incur due diligence costs.

What is the impact on the quality of due diligences?

The quality of due diligences, that in some cases eroded because of tight deadlines and limited available information, has certainly improved. These days bidders are allowed more time and receive more information from vendors. Vendors used to tell you, "this is all the information you will get." Today bidders want to know everything about a company before investing. If they don't get solid information, GPs just won't put any offer forward.

Historically, vendors' due diligence (VDD) was provided in deals of more than EUR100m. Today, even for a EUR20m deal, vendor due diligence reports are prepared. The quality of VDD reports has not changed significantly in the current climate and is still completely dependent on the team or partner writing the VDD and less on the firm. Given a small market like the Dutch, everybody knows each other and the users of these VDD reports (banks and other due diligence advisers) know who writes a good VDD.

Do the types of due diligences still increase?

Here again it depends on deal sizes. The bigger the deals are, the more due diligences will be completed, from financial due diligence to management or commercial due diligence. For mid-market deals, under EUR50m, financial, tax, pensions and legal due diligence will always be carried out. Detailed commercial and especially strategic due diligence is done more on larger deals, and the latter more large deals of EUR250m+.

Have you noticed a fall in your activity?

Again, I believe that the fall in activity mainly concerns the EUR100+ transactions, but under EUR50m the deal flow remains rather fluent. Over the last five months, we completed a dozen transactions. We don't really face competition from in-house departments because in the Dutch mid-market, firms don't necessarily have all the expertise. Furthermore, they want due diligences, but also ask for advice about deal structure, closing mechanisms (locked box versus completion accounts), management strategy and so on.

How have banks' requirements changed?

I have not seen a big change yet, but I do have the feeling that they put the due diligences forward. Previously, they would read the first 10 pages of reports (executive summary), whereas today, they will read them cover to cover. We see less syndication these days and as a result our due diligence report is read by several banks but only one of them will provide the financing of the deal.

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