DD by Industry

This topic contains 9 replies, has 10 voices, and was last updated by  Jass Lim 4 weeks, 1 day ago.

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  • #75698

    Seun Yakub
    Participant

    In what industry do you think there is the highest and lowest level of DD? This is comparing transactions of similar size and complexity.

    #82662

    Mohamed Emara
    Participant

    If the highest level in the question refers to the complexity of due diligence, I think that will be associated with specialized pharmaceutical companies and those involved in high-tech solutions. The lowest level would be retail business.

    #87128

    Gabriele Frigerio
    Participant

    I don’t think due diligence complexity is market driven. I think it depends mostly on kind of transaction and nature of businesses involved. What is your opinion?

    #107770

    Surabhi Khanna
    Participant

    Due diligence varies between countries, industries and buyer/seller’s internal practice of M&A. It’s definitely complicated in tight government-regulated sectors like healthcare, gas etc.

    #107876

    Korath Wright
    Participant

    In my opinion, the required level of Due Diligence depends on the risks involved. Higher risk transactions may require more Due Diligence. These risks may be inherent to the transaction or specific to the transaction, while some industries are naturally higher risk than others.

    Risks that are inherent to the transaction include those relating to transaction type, such as an R&D merger carrying higher risks of impacts from key staff departures.

    Risks specific to a transaction include those related to the individual company situations, how specific market conditions impact the deal, or other environmental impacts that are specific to a transaction. These also include accounting for the individual investors appetite for risk.

    Industries that have higher risks may be those that engage in operating activities which could incur more material liabilities; such as those with safety challenges, or that involve high levels of regulated activities, or are exposed to more significant amounts of litigation. Financing and investing activities can be risky, depending on their historical and current performance, such as tax liabilities from a previous tax position taken. Financing and investing risks exist across industries, however can be more prevalent in some industries. For example, blockchain ICOs (initial coin offerings) which started offerings in 2014 and peaked in 2017, skirted regulation and had significantly higher risk of investment and financing liability exposures, which results in increased need for DD.

    #109901

    Tobias
    Participant

    An industry with high DD level is the financial services industry because of special regulations, the complex to value business models and their importance to the overall economy. That’s why most advisors have special Financial Services teams.

    #115452

    Kai Jie
    Participant

    The amount of due diligence should be calibrated based on the risks prevalent in the target company. Every industry has its own set of inherent risks as well as laws set out by the government to regulate day-to-day practices. Therefore, it is necessary to perform a thorough risk assessment before ascertaining the amount of resources to vest towards due diligence. There are several good examples mentioned above, such as financial services industry, which is known for being one of the most rigorously regulated.

    #115553


    Participant

    I think due diligence in highly regulated markets and in situations where you have a lot of potential liabilities will be very complex. For one thing, regulations can change in the future and for another you have to attempt to quantify all liabilities.

    #115850

    Paul Reed
    Participant

    I would agree with Korath.

    Complexity and risk will be highly correlated to the level of DD.

    As an intermediary, I tend to work in the Mental Healthcare sector.

    This sector does tend to lend itself to a longer and more thorough DD process and insurances, contracts and billing all need to be examined to identify exposure to risk.

    #115897

    Jass Lim
    Participant

    Companies with asset-light models would probably be the toughest

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