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Due diligence is an audit or investigation of a potential investment to confirm facts that may have a direct impact on a buyer’s decision to merge or make a purchase. During the due diligence process, research is conducted to ensure that all facts pan out before entering into a financial transaction or agreement with another party.
In a company acquisition, due diligence typically includes the full understanding of a company’s obligations, such as their debts, leases, distribution agreements, pending and potential lawsuits, long-term customer agreements, warranties, compensation agreements, employment contracts, and similar business components.
I believe it is an integral part if not the most important one to figure out if to go with that corporate transactioni or not.
Yes, DD is fundamental to determining the pros and cons of acquiring a target. A thorough DD uncovers many of the risks, opportunities and potential synergies in pursuing a target. It will either validate or refute your hypothesis and help define the level of risk your company is willing to take in a given situation.
Yes, DD is an important component of M&A. Failing to conduct a thorough DD will impact the success of the M&A. As such, you want to consider the pros and cons of the M&A, assess the risks and opportunities and investigate the target in a comprehensive manner to avoid surprises and poor outcomes both during and after the merger/acquisition.
I cannot imagine to take a decision to go for M&A without conducting DD. However, what I believe is important is to what extent we conduct DD. If targets are small and if acquirers know very well about them, then, the scope of DD can be very limited. However, the scope of DD should be extended if there are clear risks.
Yes, due diligence is the process of thoroughly investigating and assessing a company’s business, financials, operations, legal compliance, and other aspects before finalizing a merger or acquisition. It helps the acquiring company to understand the risks, liabilities, and potential synergies involved in the deal.
Definetely is a key part of the M&A transaction. A poor due diligence can harm the expected outcome of the deal.
DD is undoubtedly is a crucial and necessary even integral part of M&A.
Having said that, DD needs to strike a delicate yet acceptable balance between full discovery and full disclosure given both are conflicting and contradictory in nature. One, the buyer, wants to know as much as possible if not everything at least things that can rendered the acquisition a “failure” while the other, the seller, wishes to ‘sweep things, particularly unwelcome or unwanted, under the carpet’. Coupled with the dichotomy of one aiming to buy at the lowest possible price versus the other determining to sell as high as possible, all these makes DD challenging, complex and very often frustrating.
Having said that, what are some mitigations, safeguards etc. can be put in place to ensure DD happens effectively and efficiently?
Yes due diligence is core to the M&A process. It can be split into 2 parts the “business DD” which focuses on strategic fit, high-level financial assessment and valuation and getting comfortable about the quality of the management team. Post non-binding offer, the “confirmatory DD” starts focused on auditing and verifying financials, tax impact, legal and uncovering any skeleton in preparation to the binding offer.
It is a key part of an acquisition deal and it’s finding will play an important role in the integration plan and success
Indeed, conducting a thorough due diligence process is a key and essential component. Regardless of the deal’s scale or location, every transaction should undergo a comprehensive due diligence examination. This meticulous approach allows parties involved to gain a comprehensive understanding of the potential risks, opportunities, and overall health of the target company, paving the way for more informed decision-making and ultimately contributing to the deal’s success.
Yes it is part of M&A. It’s also a time to evaluate and test integration plan assumptions in prep for a deal that ay go through.
Yes, it is a very important port of the M&A. However, it’s not necessarily conducted by the M&A team, unless it already includes representatives from the Finance team. Depending on the size of the company, this element is either handed over to the Finance team or, more commonly, an external firm of accountants is hired in order to perform the DD.
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