Financial Due Diligence – Cornerstone of Every Deal

GOAL - Analyze and validate financial, commercial, operational and strategic assumptions underpinning a Deal

Focuses on historical results to form a view of future and confirm there are no “black holes”;
Key outputs:

  • Quality of earnings
  • Quality of net assets and working capital
  • Confirms or provides business model assumptions
  • Identifies risks and possible mitigators, via representations & warranties, purchase price adjustments and completion reviews
  • Generates negotiation points to support your offer and refute counter arguments; Definitions / Business Conduct Issues / Indemnifications

Direct and Indirect Tax Due Diligence

GOAL - Evaluate potential tax implication of the transaction and tax position of the target

Complex tax and regulatory regime in most Asian countries;

Different legal structures and industry segments have different tax risk profiles

Key outputs:

  • Identifies tax risks as well as compliance status of Target
  • Advise on how identified tax exposures can be mitigated
  • Provides optimal financial and tax structure for the proposed deal

Market Due Diligence

GOAL - Assist in understanding the condition and prospects of the market a Company wishes to enter in

Typically involves a combination of desk research, interviews with target management team, key trading partners and industry experts;

Key outputs:

  • Issues in respect of achievability of business plan projections
  • Target’s positioning and competitiveness
  • Target specific market and industry related issues
  • Identifies strategic value creating opportunities
  • Highlights Exit risks and opportunities

Operational Due Diligence

GOAL - Gaining a coherent overview of a Target’s operations

Covers full scope of business operations from supply chain and logistics to manufacturing and commercial activities;

Ensures that sufficient work is done on some of the operational assumptions that are key to the success of a deal;

Key outputs:

  • Assess operational effectiveness
  • Identify and quantify opportunities for operational improvement and develop action plans to deliver against these opportunities
  • Assess existing management structure and provide insight on personnel related issues
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IT Due Diligence

GOAL - Evaluation of IT security & controls and business process issues

Particularly important for M&A in the IT services sector;

Key outputs:

  • Assess existing IT infrastructure and future needs
  • Provides inputs for planning integration of systems and applications
  • Highlight key business process issues, such as in purchases & payables cycle, revenues & receivables cycle
  • Assess security & controls to ensure data integrity, availability and confidentiality

HR Due Diligence

GOAL - Qualitative evaluation of existing staff including HR policies

Typically covers pension and employee liability valuation, payroll costs validation, employment termination costs, compensation and benefit alignment costs

Key outputs:

  • Assess existing levels of employee proficiency against industry standards
  • Highlight redundancy issues
  • Assess potential for redeployment of staff
  • Analyses of industrial relations
  • Assess employee compensation, including retirement benefits

Operational Due Diligence

Operational Due Diligence aims at the assessment of the functional operation of the Target Company.

Strategic Due Diligence

Strategic Due Diligence tests the strategic rationale behind a proposed transaction and analyses whether the Deal is commercially viable, whether the targeted value would be realized.

Technical Due Diligence

Intellectual Property Due Diligence – Review & diligence of Intangible Assets like Patent, Copyright, Design, Trademark , Brands etc. getting greater importance. Technology Due Diligence – Technology Due Diligence considers aspects such as current level of technology, Company’s technology, further investment required etc.

HR Due Diligence

HR Due Diligence aims at People or related issues. Key managers and scarce talent leave unexpectedly.

Environmental Due Diligence

Environmental Due Diligence analyses environmental risks and liabilities associated with an organization

Information Security Due Diligence

It is often undertaken during the information procurement to ensure that risk  are uncovered.

Due Diligence : learn from the past, but look towards the future