Due Diligence Done In-House
William J. Curtis, the wheeler-dealer owner ofCurtCo Robb Media, advocates
a novel method of analyzing a company’s value. Every so often, Curtis does a
unique spin on the M&A procedure by conducting internal due diligence
The point, Curtis says, is to see the company clearly and sustain the
discipline necessary to succeed and innovate. "Usually it’s about this: If
you bought the company today, how would you optimize it going forward?"
Curtis says. "It’s a really interesting perspective if you’re looking at
it from an acquirer’s point of view rather than the day-to-day
Curtis says he started the internal due diligence drills in the
mid-nineties, when he reacquired Mobile Office from Cowles Business Media.
"It was plodding along," he says. "When we came back from our due diligence
trip we completely revamped it from a consumer magazine. We made it more
of a trade, but it went to the highest-volume buyers of mobile computing technology.
Out of that same meeting came the idea to launch a sister publication, which
resulted in Sales & Field Force Automation."
Two Forms of Drills
At CurtCo Robb Media, the drills come in two forms. The first is periodic "milk crate"
exercises, where the executive team meets in a conference room full of
boxes of documents. Usually Curtis brings in an outsider;a financial
partner, a banker;"someone as distant as possible to see if they can stump
us," Curtis says. "They are a test for completeness, for making sure we
have clearly thought out every question that should be asked in an
The second form is even more elaborate. CurtCo takes the department heads
to a vacation location, but "it’s only partly a vacation," says Curits.
The team does a rigorous review and analysis, line item by line item.
CurtCo’s due diligence checklist has 195 items across 12 disciplines,
including the usual editorial, advertising and circulation, and also human
resources, finance, legal, IT and Internet.
"Inevitably, we come back with ideas not just to make the company more
efficient but also about where we can grow that we didn’t think of
before," Curtis says. "You can get caught up in things, putting out fires
all day. Once in a while we try to look at it from a different point of
For those who wish to follow the CurtCo example, here are some tips on
getting your own internal due diligence process into motion:
1. Get in the habit of doing regular internal due diligence drills. According to
Tom Taulli, president of the consultancy Taulli Group in Newport Beach,
California, and author of The Complete M&A Handbook (Random House), this
should be done every six to twelve months. "You should start today, and never
wait until the last minute," he says. "Get in the habit of doing it right away!" Taulli also
observes that information distinct to the publishing industry, such as
circulation numbers, intellectual property control and potential liability
coverage for editorial content, should always be double-checked.
2. Look beyond your company’s current legal and accounting team to
conduct the due diligence drill. Harlan Schreiber, a partner with the New York
law film Tell Cheser Breitbart, recommends hiring an attorney specializing in M&A and a
forensic accountant to conduct the exam. "You generally do better with
outside people," he says. "They are detached from the process and not
connected to company in any way."
3. Even though this is a practice drill, go through the motions as if this is the
real deal. Get your accounting staff to have all corporate financials and tax documents
up to date and ready for inspection. "A lot of it is very simple," says Taulli.
"Get together a list of your incorporation papers, board minutes, your
lease, your insurance policies, and all other relevant paperwork, and put
them in a binder with tabs for each section."
4. Leave none of the proverbial stones unturned, especially when it comes to the
highest ranking people in the company. "Background checks are so easy to do,"
continues Taulli. "All senior advisors, senior managers and board members should
have background checks done as part of the due diligence. You’d be surprised at a lot of
the histories of those people!"
5. Be prepared for an unhappy surprise. Allan F. Pacela, president of
Publishing Management Company in Solvang, California, observes the most likely
negative result from an internal due diligence drill will not be fraud, but rather
plain old incompetence. "I run into a lot of incompetence," he says. "When books
don’t balance, when orders taken by credit card are thrown into a pot and not accounted for,
Yet Pacella wonders if the publishing companies which could benefit from
an internal due diligence exercise would even consider such an endeavor.
"A company not keeping a proper accounting system is probably not inclined
to look at that idea," he observes.