Outsourcing Enhanced Due Diligence: A Growing Trend

Conducting thorough due diligence is crucial to any deal, merger, or acquisition, especially in the current regulatory climate. Proper due diligence helps investors and buyers understand the potential mid- and long-term impacts of prospective deals on their business and their target acquisitions. 

Increasingly, dealmakers are turning to external, third-party providers to boost and enhance the productivity of their due diligence process which is becoming an increasingly longer and more involved process, and they would rather take this headache off their plates. As a roundtable of experts recently discussed at Chicago Business, more and more third party due diligence service providers are popping up. 

Why Outsource Due Diligence?

Activities in the investment markets have intensified since 2020. For investors looking to cash in or to get involved in an M&A deal, this development has put a tremendous amount of pressure to quickly find and close the best deals.

Traditionally an internal, in-person process, many organizations, broker-dealers (BDs), and investment firms now look to third-party providers to perform enhanced due diligence. 

Why? Because typically, unless they are very large, enterprises do not have the time, resources, or the in-house expertise to perform due diligence tasks themselves.

The volume of relevant information available is enormous, requiring investors to find more sophisticated means to derive actionable insights from all that data. Independent BDs don’t necessarily have access to the most cutting-edge tools and resources to find and analyze the reputable data they need to help them in their deal-flow decisions. In addition, such access could be prohibitively expensive for small boutique banks.

In short: if they pursue due diligence in-house, many BDs will struggle to keep their pipeline moving and to achieve profitability.

Moreover: The disruptions stemming from the crisis of the global COVID pandemic compelled M&A professionals to conduct due diligence and facilitate deals on a largely remote basis. 

And the deals completed in 4Q20 beating historic averages was a clear indication that enhanced due diligence by external parties wasn't only possible – but has become a trend that is here to stay.

Enhanced Due Diligence, the Finalis Way

At Finalis, we know first-hand how much our users value our outsourced due diligence.

We work with nimble, agile bankers whose time is highly constrained. For many of them, it doesn’t make sense to deploy the technology and the manpower to perform in-house due diligence. The initial set-up expenses simply don’t make sense. 

For example: Capital Clarity, a San Francisco investment banking firm, turned to us for precisely this reason. 

“Finalis is great for smaller organizations that don’t have access to compliance solutions and specialized legal functions and services," said founder, John Cooper.

Beyond affordability, enhanced due diligence providers offer faster turnaround times than the traditional, internal due diligence team. In Finalis' case, reports and recommendations are delivered within hours. For investors that are on a very time-sensitive schedule, this is a distinct advantage.

“The previous broker-dealer I worked with would take a week to turn in stuff,” said Billy Birdzell, Managing Director of the Horatius Group, a midsized investment firm operating out in Santa Monica, California. “Finalis does it in four hours.”

This marriage of speed, accuracy, and affordability directly addresses the challenges of the traditional due diligence process. With the M&A and investment markets becoming increasingly competitive, enhanced due diligence by external parties allows the smaller investment firms and boutique bankers to compete, find and close the best deals, and thrive in their respective industries without having to put up much capital.

Faster, affordable, and more accurate due diligence can be the crucial factor in your future deals and transactions. Finalis gives your organization that distinctive edge with high-quality enhanced due diligence solutions and as well as access to a community of industry experts to get your deals compliant and optimized.