DD – Does it simply confirm a decision already made

This topic contains 16 replies, has 17 voices, and was last updated by  Muhammad Saqib Ishaq 4 hours, 2 minutes ago.

Viewing 15 posts - 1 through 15 (of 17 total)
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  • #115967

    Clifford Newton
    Participant

    I’ve been involved in several due diligence cases and in everyone the obvious conclusion was not to purchase, yet the owner had already made up their mind regardless. I therefore question the need for the activity.

    #116063

    Mandana Javaheri
    Participant

    That shouldn’t be the case although I have experienced few acquisitions where the DD was done after the decision was made. In my opinion the DD should drive the decision not the other way around

    #116236

    I agree with the observation Clifford has made – if a CEO/owner/investor wants to buy a company, they often will, even if the DD results strongly suggest to move away from the deal. There is a lot of ego coming in the way.
    Here the decision makers have to work on themselves and set thresholds in the beginning what their absolut minimum requirements are.

    #116993

    Belema Obuoforibo
    Participant

    Yes, this happens quite a bit. Indeed DD should drive the decision, but then again, as any marketer will tell us, most purchasing decisions (whether of a company or or of anything else) tend to be primarily emotional ones.

    #117109

    Sebastien Perroud
    Participant

    Very good question. It is sure that by starting a DD, which is bind to non-negligible costs, a strong interest to proceed with the transaction is present.I think that the DD can especially invalidate a pre-decision already taken or highlight risks to be taken into account during the post merger integration.

    #117115


    Participant

    Indeed, the idea of DD is generally to “confirm” the understanding of pluses about a business that is to be acquired. However, if the DD result suggests otherwise, there remains a strong bias (with ego in play, as previously mentioned) to pursue given the amount of resources spent albeit this being an illogical decision – spending good money after bad.

    #117233

    Siddharth Pai
    Participant

    In most cases the DD is used for confirm a base hypothesis. While a thorough DD is essential for any decision making interpreting the outcomes of the DD are often challenging and dependent on the risk appetite of the buyer.

    #117668

    Kevin Ng
    Participant

    I think it’s 50/50. If the will to do the deal is very strong, DD becomes more of an exercise to get the seller to reduce the valuation. It also helps the buyer figure out areas of risk post-acquisition, so that the buyer can put in control measures.

    In other cases where the will to do the deal is not strong, or the commercial aspects of the deal is not very attractive, then DD becomes justification to walk away from the deal, without hurting relationships with the seller too much

    #117676

    Shari Natanael
    Participant

    I seems to see what Clifford observed in terms what happening with current DD process in the company I worked for…

    #117840

    Leslie Tan
    Participant

    good point by Clifford, it is dangerous especially when a decision is derived without DD and in cases like these seems the DD is taken as a by product to justify the decision.

    #117965


    Participant

    The activity remains valid, despite the owners’ decision to ignore their conclusions..

    If it works out for the owner, perhaps it was luck, perhaps there were gaps in the analysis which can be improved on for the future?

    If it does not work out for the owner, well, you told him/her so 😛

    #118183

    Joselin
    Participant

    It all depends on the mindset of the owners.

    If they are dead set to acquire, if anything, the information can perhaps help them be acutely aware of the potential problem areas to focus on once the deal has been completed.

    However, if the information presented is compellingly negative, however inclined the owner had been in the first place, it should give them pause.

    #118636


    Participant

    I believe it really depends on how familiar the investor is with the target’s business. I have heard that before… but to start with the mindset one already knows everything, defeats the objective of the DD even before you start. Even if the investor is familiar, the question should be to consider what are the high-risk issues/ areas for the deal so as to shape the DD process. Otherwise it is just paying lip service and a complete waste of time and money.

    #118652

    Peter Sakaitis
    Participant

    I think this process should drive the end decision. In my experience dealing with a DD for my company, both sides were very committed to wanting the deal to happen, but the DD clarified some of the grey areas that needed to be sorted out. I believe there is good value in the DD process; but perhaps at times, not all the parts.

    #119353

    Samantha Maraj
    Participant

    By the time due diligence is being conducted, I do agree in most situations the decision has already been made and financial resources have been committed. I do think the importance of the exercise in these situations would be to ensure that post-merger integration can be made as seamless as possible.

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