What Does
Due Diligence Grind Mean?
Due diligence grind refers to a bidder’s reduction of its preliminary offer price on the basis that their due diligence on the target company reveals information that is less favourable than the bidder’s initial expectations.
While there are many instances where a bidder’s reduction of its preliminary offer price is warranted (the discovery of a previously undisclosed liability, for example), the due diligence grind typically refers to circumstances where a bidder floats an inflated initial price in order to access a target company’s confidential information with the intention of using its due diligence findings as a pretext to reduce its offer price.
Divestopedia Explains Due Diligence Grind
A bidder’s preliminary price indication is always based on incomplete information. To mitigate the risk of the due diligence grind, a seller should require that a bidder discloses the key assumptions on which its preliminary offer price is based at the time of submission of its expression of interest. This limits the scope of the negative findings that the bidder can claim it uncovered during its due diligence.
Bidders have much broader latitude to claim negative due diligence findings and grind down a preliminary offer price when they have been silent on underlying assumptions.