External due diligence advisors
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From your experience, in what part(s) of the due diligence process is it particularly advisable for a buyer to engage an external DD advisor? Do you think the answer varies between countries or industries?
In the Tax DD in my opinion. Especially when doing M&A in companies with operations in different countries with different tax laws.
Agreed that it really depends on the experience and expertise of the in house team. Eventually. I think the board or CEO will have decide how much reliability they can put on their in house team and they have to justify the risks and benefits arising the engagement of either internal or external team of expert. If resources allow, I would think the top management will engage external expert on most of areas and use the internal team as independent check on their works.
Definitely engaging advisors are key to most transactions, yet countries and organizations vary. In some organizations they have the legal, financial and technical organization and their dependence on external advisors are limited. In my opinion, engaging external advisors are very important as they will look into the transaction form their specialty point of view with an advisory role in mind.
How can an external due diligence advisor advice on an industry without spending massive of time to understand the industry? As such, great care in terms of selecting the external due diligence advisor to ensure alignment with the task at hand. Otherwise, you’ll probably be better off seeking the input of an existing practitioner who would be able to see the business as it is (after years of accumulation, reflection and thoughts)
Yeah I also think it depends on the size of the acquisition (financial risk), and the competency of the in-house DD evaluators (e.g. same industry, same country as target company, familiarity of the target company’s business model and strategy). If the deal is significant and/or in-house evaluators are not confident of the target company/industry then best to get external advice.
Key elements for consideration in getting external DD advisory. 1) How familiar you are in buying businesses (you have internal internal teams with experience in M&A processes), 2) How familiar the target sector is for your (diversification Vs expanding capabilities) 3) Whether it is cross-border or local and 4) time for execution
I think the assessment of volume of advisors hinges upon a few factors, but most importantly upon the quality of internal staff knowledge within that function. If the staff is not as knowledgable, you’ll need strong external support. That said, external advisors do provide a measure of risk remediation, regardless of quality/depth of staff. For example, an external quality of earnings should always be done regardless of strength of internal finance team. And, code scan/open license review should always been done with software/tech regardless of the IT departments magnitude. There are some functions which just require diligence review from an external source.
Finance, Tax, HR/Benefits and IT should always have an external advisor. Ops/Infrastructure and Sales/Marketing are harder to diligence externally.
Believe it varies, depending on industries, deal sizes, internal functional team’s capabilities of performing certain DD streams, the acquirer’s risk appetite, etc
From my undertanding, legal DD and tax DD are usually the ones cannot be spared, followed by finance.
Generally, I think that in deciding whether to seek external third-party advice from specialised due diligence experts/advisors, the companies will have to ascertain whether there is sufficient finances considering the overall budget for the merger/acquisition and whether the deal is one that is of a complexity level that renders the need for external advisors. If the deal is one that is complex involving expertise beyond the competencies of the in-house due diligence team/management team, then certainly the engagement of external advisors would be highly necessary and recommended.
In my opinion, it is financial due diligence that is buyer’s main concern. Even after cursory review of financial statements and audit reports of the target company, the purchasing company should try and infiltrate into the company operations to ensure reports and reality are aligned. All too often, financial statements and audit reports portray a rosy view of a company that might not be aligned with reality. It is the buyer’s duty to look for anomalies in the financial statements and follow investigation through into operations (if possible). I don’t not believe this varies between companies, industries, and countries.
It certainly varies between countries and industries. Pursuing an acquisition in China is very different for instance from the US, due to regulatory and cultural differences. Some industries may require some acquirers (depending on the fields of expertise of the acquirer) to hire advisors; it is never recommended to enter a field where your know-how and connections are very limited without qualified words of advice.
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