December 27, 2019 at 7:34 pm #103118
What are the 5 primary areas of inquiry for buy side due diligence on small to medium size deals.
Deals between $1 million to $10 million in Enterprise value.December 30, 2019 at 8:50 pm #103305
The areas that I have focused the most are typically around the following:
1. Finance (accounting, tax, etc)
2. Legal – Litigation (any litigation pending)
3. Legal Corporate structure (subsidiaries and legal entities)
4. IT (Data Privacy and Security and existing contracts)
5. Product (Whatever the company is being acquired for, all relevant information related to that company or product)
6. HR – If we plan to retain employment for the target company, we request HR related information near the end of due diligence to ensure we are ready for day 1 integration (ie. comp as we will need to do a market assessment on compensation and provide welcome letters to employees, this is also used to adjust payroll costs in the model).March 18, 2020 at 5:59 am #108658
Smaller deals generally require more Due Diligence in a relative sense, but it varies according to the desired risk profile of stakeholders. Certain DD areas require different levels of inquiry to account for features inherent to small companies.
Small companies typically lack transparency and have fewer governance requirements. Their financials are less reliable and consistent, leading to additional work in getting numbers of a similar quality. Key people are more highly concentrated, and may include disembarking owners. More risks emerge from lower historical scrutiny in areas including previous tax positions, environmental regulations, health and safety requirements, and other regulated activities specific to the situation.
A middle-market company’s Due Diligence timeline may be shorter than a smaller company’s, although likely with more total work-hours. Some of the activities required in Due Diligence take time to varying degrees regardless of how big the team is. For example, getting environmental test results back from a lab. Other processes require additional activities for small companies, such as rationalizing unreliable financial statements, or digging into tax history, etc.
Additionally, legal remedies may not be applicable in the same way due to prohibitive relative fees and distraction, or if the selling owner/management stay on as managers to support performance through the transition.
These and a multitude of other factors specific to the situation can lead to longer timelines and greater relative workloads for small business Due Diligence in order to deliver a comparable set of risks.May 26, 2020 at 8:04 pm #110390
Due Diligence (DD) will vary not only by deal size but by industry as well.
As an intermediary, I work with businesses with enterprise values from approximately $3M – 10M in the mental health industry, and I build out a 12 week DD schedule in which we typically engage in the following areas:
1. Corporate structures
2. Capitalization & shareholders
4. Tax matters
5. Employee benefits & labor matters
6. Company agreements
7. Licenses & permits
9. Legal & regulatory
10. IP matters
12. Environmental matters
13. Miscellaneous matters
On average we spend approximately 10 weeks in review and close the transaction within 12 weeks.May 29, 2020 at 2:51 am #110441
I work in the Engineering and Construction Industry and we focus on the following during DD:
1. Operations (inclusive of corp structures)
2. Accounting and Financials
4. Legal, Insurance, Contracts
5. Health, Safety, Environment and Quality
6. I.T and Systems
8. MiscJune 24, 2020 at 10:00 am #111843
I think it largely depends on the target company’s business, which affects the key areas that you would want to focus on for the purposes of due diligence. Nonetheless, my view is that there should always be basic DD conducted on:
3. Key contracts with suppliers/customers, etc..
5. Key employeesJune 29, 2020 at 4:34 pm #111923
– HR Synergy
– Hidden legaciesJuly 7, 2020 at 7:08 am #112065
Some key areas of focus:
Key revenue drivers and projections
Historical customer details
Product/Service line pricing structures
Salesforce details including performance, tenure and turnover
Accounting, insurance, legal and tax due diligence, as already mentioned above
I have an SOP which goes into more detail if that is of interest.July 12, 2020 at 3:28 pm #112165
I work as IT M&A consultant focused on IT due diligence. IT is often very complex to understand due to its technical complexity, number of systems, applications, end-users, etc. For these reasons, many deals fail to achieve planned synergies (after integration between 2 companies, systems might not talk to each-other, data might not be correctly integrated, access rights to apps might now work after Day 1, you might end up with having duplicate ERPs, HR, supply chain systems, having data scattered across different databases, etc.). In order to avoid this it is important to have strong IT due diligence before the deal.
Here are only few activities that IT due diligence looks at.
– Define IT applications and systems owners for relevant business functions (Finance, HR, Sales and marketing, Operations, Logistics, Customer service, Quality and regulatory, Legal, Procurement, etc.)
– Create inventory of IT applications and systems
– Document hardware inventory
– Document infrastructure landscape
– IT security (audit tools, authentication, directory services, encryption, virus protection, etc.)
– Systems management (configuration / asset / change management, service/help desk, etc.)
– Telecommunications (firewall, wireless, voice, data, etc.)
– Identify business critical applications and infrastructure components
…August 6, 2020 at 10:24 pm #112520
Key areas of focus would be:
Financial: Review revenue, margin trends, balance sheet, stock price history
Legal: Ownership structure, legal risk, intellectual property, leases
Human Resources: Headcount, employee turnover, employment agreements, benefits, pay structures, culture assessment
Operations: Product development, innovation
Technology Infrastructure: cybersecurity, voice, data, systemsApril 4, 2021 at 2:44 am #118700
Accounting, Tax, Legal, HR, Operations.
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