{"id":64472,"date":"2025-04-10T15:03:36","date_gmt":"2025-04-10T22:03:36","guid":{"rendered":"http:\/\/www.enxmag.com\/twii\/?p=64472"},"modified":"2025-04-10T15:03:39","modified_gmt":"2025-04-10T22:03:39","slug":"more-than-a-gut-reaction-experienced-ma-veterans-share-due-diligence-red-flags","status":"publish","type":"post","link":"https:\/\/www.enxmag.com\/twii\/the-week-in-imaging-twii\/editors-blog\/2025\/04\/more-than-a-gut-reaction-experienced-ma-veterans-share-due-diligence-red-flags\/","title":{"rendered":"More Than a Gut Reaction: Experienced M&A Veterans Share Due Diligence Red Flags"},"content":{"rendered":"\n
\"\"<\/figure><\/div>\n\n\n\n

In the world of psychology, there\u2019s a phenomenon called \u201cfirst-instinct fallacy\u201d that maintains we tend to trust our initial gut reaction to something, even when we shouldn\u2019t. So maybe while that impulse reaction to, say, an investment opportunity may be helpful in saving us from ourselves (and bankruptcy), the world of mergers and acquisitions (M&A) relies less on instinct, using years and years of experience with due diligence.<\/p>\n\n\n\n

As such, it\u2019s not surprising that some of the industry\u2019s biggest M&A players are adept at spotting a cause for concern in the due diligence process that either prompts deeper vetting or, at the far end of the spectrum, brings the talks to a screeching halt. Some of the red flags are more prominent, others may be far more subtle. As part of the April State of the Industry report on M&A, we\u2019ve asked our panel of dealer execs to share the warning signs that may be worth heeding during the courtship process between buyer and seller.<\/p>\n\n\n\n

\"\"
Eric McIntosh, WiZiX<\/figcaption><\/figure><\/div>\n\n\n\n

One of the more frequent issues is when inventory assets are misclassified or aged past their useful life, notes Eric McIntosh, senior vice president, WiZiX Technology Group. This can significantly skew the final sale price.<\/p>\n\n\n\n

Another cause for concern is how owners account for commissions they would have earned on deals they close without taking a commission. \u201cOften, they let this boost the bottom line without reflecting it in sales expenses, which distorts the EBITDA we can realistically achieve post-acquisition,\u201d McIntosh said. \u201cAnd a lot of sellers fail to realize the impact of their prepaid maintenance agreements, since it\u2019s calculated as a liability against the sale price.\u201d<\/p>\n\n\n\n

\"\"
Travis Sheffield, UBEO<\/figcaption><\/figure><\/div>\n\n\n\n

Travis Sheffield, vice president of acquisitions for UBEO Business Services in Austin, Texas, notes that there are few surprises during their due diligence process. The more common issues, such as accounting or contractual irregularities, are generally ferreted out in early discussions. The real deal-breakers generally are not cloaked or obscured.<\/p>\n\n\n\n

\u201cChallenges can arise if there is a sudden decline in financial performance or the loss of key customers before closing,\u201d he said.<\/p>\n\n\n\n

\"\"
Jim Haney, Doceo<\/figcaption><\/figure><\/div>\n\n\n\n

The lack of tracking for old inventory often indicates operational inefficiencies that can create issues post-acquisition, notes Jim Haney, CMO for Doceo of York, Pennsylvania. Another indication of a potential problem is OEM instability.<\/p>\n\n\n\n

\u201cDealerships with inconsistent or problematic OEM relationships raise concerns about future product availability and serviceability,\u201d Haney noted.<\/p>\n\n\n\n

\"\"
Jason Weiss, Atlantic Tomorrow’s Office<\/figcaption><\/figure><\/div>\n\n\n\n

Jason Weiss, executive vice president and legal officer for Atlantic Tomorrow\u2019s Office of New York City, points to problematic data that has cannot be reconciled. That data can often be incomplete or inaccurate.<\/p>\n\n\n\n

\u201cOne example is financial data that doesn\u2019t tie to previously provided financial information or across financial statements,\u201d Weiss noted. \u201cOther red flags can include a lack of transparency and\/or misrepresentations. Significant changes to the organization chart in the periods leading up the transaction [is another cause for concern].\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

In the world of psychology, there\u2019s a phenomenon called \u201cfirst-instinct fallacy\u201d that maintains we tend to trust our initial gut reaction to something, even when we shouldn\u2019t. So maybe while that impulse reaction to, say, an investment opportunity may be helpful in saving us from ourselves (and bankruptcy), the world of mergers and acquisitions (M&A) relies less on instinct, using years and years of experience with due diligence. As such, it\u2019s not surprising that some of the industry\u2019s biggest M&A players are adept at spotting a cause for concern in the due diligence process that either prompts deeper vetting or, at the far end of the spectrum, brings the talks to a screeching halt. Some of the red flags are more prominent, others may be far more subtle. As part of the April State of the Industry report on M&A, we\u2019ve asked our panel of dealer execs to share the warning signs that may be worth heeding during the courtship process between buyer and seller. One of the more frequent issues is when inventory assets are misclassified or aged past their useful life, notes Eric McIntosh, senior vice president, WiZiX Technology Group. This can significantly skew the final sale price. Another cause for concern is how owners account for commissions they would have earned on deals they close without taking a commission. \u201cOften, they let this boost the bottom line without reflecting it in sales expenses, which distorts the EBITDA we can realistically achieve post-acquisition,\u201d McIntosh said. \u201cAnd a lot of sellers fail to realize the impact of their prepaid maintenance agreements, since it\u2019s calculated as a liability against the sale price.\u201d Travis Sheffield, vice president of acquisitions for UBEO Business Services in Austin, Texas, notes that there are few surprises during their due diligence process. The more common issues, such as accounting or contractual irregularities, are generally ferreted out in early discussions. The real deal-breakers generally are not cloaked or obscured. \u201cChallenges can arise if there is a sudden decline in financial performance or the loss of key customers before closing,\u201d he said. The lack of tracking for old inventory often indicates operational inefficiencies that can create issues post-acquisition, notes Jim Haney, CMO for Doceo of York, Pennsylvania. Another indication of a potential problem is OEM instability. \u201cDealerships with inconsistent or problematic OEM relationships raise concerns about future product availability and serviceability,\u201d Haney noted. Jason Weiss, executive vice president and legal officer for Atlantic Tomorrow\u2019s Office of New York City, points to problematic data that has cannot be reconciled. That data can often be incomplete or inaccurate. \u201cOne example is financial data that doesn\u2019t tie to previously provided financial information or across financial statements,\u201d Weiss noted. \u201cOther red flags can include a lack of transparency and\/or misrepresentations. Significant changes to the organization chart in the periods leading up the transaction [is another cause for concern].\u201d<\/p>\n","protected":false},"author":166,"featured_media":64473,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[80,1650,82,1638],"tags":[108,3923,3510,3290],"_links":{"self":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/64472"}],"collection":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/users\/166"}],"replies":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/comments?post=64472"}],"version-history":[{"count":1,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/64472\/revisions"}],"predecessor-version":[{"id":64474,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/64472\/revisions\/64474"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/media\/64473"}],"wp:attachment":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/media?parent=64472"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/categories?post=64472"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/tags?post=64472"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}