Mesinger Pulse: Due diligence – we must never slip backwards

Jay Mesinger reflects on the importance of due diligence.

So much changed for us all from March 2020 to the end of 2023, writes Jay Mesinger, CEO and founder, Mesinger Jet Sales.  At the top of the list, and arguably one of the most frustrating, was the sheer lack of inventory, shifting our sales environment from a fairly balanced market to a sellers’ market.

As I’ve written before, a plane would come on the market in the morning and by lunchtime there would be five full price offers. Then the seller would revert to a bidding war. Not only for the highest price but also for how scaled back the due diligence was being discussed. I often said we should run an ad that says: ‘Hire Mesinger Jet Sales and let us manage your greed.’

We paired down significantly the number of transactions we would be involved in for the fourth quarter of 2021 and 2022 based on the frustration that our clients would suffer trying to keep up with a process that was so seller centric. It started to feel good in 2023 when the market began to shift back to more balance, with increased inventory and greater opportunity to negotiate a more usual and customary transaction.

As we make our way into the second half of 2024 and quickly Q4, I am starting to hear a familiar chant again. If we thought getting pre-buy slots was difficult during the pandemic, just hold on, it is beginning to look a lot like that again. We are getting back to needing a slot booked two and three months out.

This will initiate conversations from our clients of paired down due diligence that we must be very wary about. Don’t be fooled into contemplating a very scaled back pre-buy to allow for a better chance of completing a transaction in a shorter more predictable timeline for year-end tax purposes. There is no such thing given the continued supply chain issues and labour issues of a totally predictable timeline. What can be totally predictable is the expectation of a close within a reasonable period, but not a year-end close.

We are getting to that time of the year when we all are going to start getting calls from buyers who say they want to buy a plane and must close by year end. It might seem early enough for that call and the ability to get closed in time. However, one silly discrepancy – like a piece of skin for a repair that may take six months to manufacture – and the deal is stalled. That of course is an extreme case, which more than likely would hamper the transaction anyway, however, don’t underestimate the timing for rectification.

So, I am starting to hear the old mantra, let’s just pick a number that seems reasonable and reduce the price of the plane and perform very minor views then close. Seems simple but what if…?

We as an industry literally clawed our way back to the opportunity to perform the right, smart due diligence, let’s not slip backwards.

I wrote an article once about manufactured tensions. As if we don’t have enough tensions without manufactured tensions. As a good friend of mine who is a fellow sales professional said to me a few weeks ago: “We need to all work now to help our clients have the right adjusted expectations as we take them into the end-of-year transaction arena”.  Read the previous Mesinger Pulse article here.