Resources of the Week: Due Diligence
By Shirl Kennedy, Senior Editor
In our travels around the business web, we happened across a selection of papers about due diligence from the global consulting firm Deloitte LLP (Deloitte Touche Tohmatsu). We know this is a topic of interest to a subset of our readers, so we thought we'd share these with you this week. (Note that Deloitte requires free registration to access its resources.)
While appearing sound on the surface, your international expansion planning may have failed to identify underlying risks that can be mitigated with the right cross-border due diligence.
Deloitte Financial Advisory Services LLP presented a Dbriefs Webcast for financial executives, "Cross-Border Investigative Due Diligence: The Look Before You Leap Imperative," that focused on what you can do to help recognize and identify potential problems with your global expansion plan before you take the proverbial big leap into new territory. The discussion covered issues around legal, financial and reputation risks, particularly in emerging markets. Panelists also described mitigating actions that come out of some of today’s top investigative practices, including intelligence gathering techniques and appropriate methodologies for conducting background checks.
While the webcast mentioned here doesn't seem to be available online anymore, the associated summary white paper -- Cross Border Investigative Due Diligence (PDF; 120 KB) -- is still available for download.
Human capital and personnel costs are typically the largest expense items appearing on the income statements of most companies. Human capital due diligence during mergers and acquisitions (M&A) often is an underestimated and undervalued piece of the overall due diligence process. There is more to human capital due diligence, however, than just analyzing benefits and compensation — including correctly identifying significant cost increases and hidden liabilities that could account for millions of dollars in an M&A transaction.
Download the attached article (PDF; 355 KB) to learn about the Top 10 Myths of Human Capital Due Diligence, and how your company can do its best to increase the likelihood of achieving expected strategic goals from M&A.
Mergers and Acquisitions (M&A) are all about synergy – whether cost savings or strategy support – and information technology (IT) can be instrumental in achieving this. A recent Deloitte study of 31 companies that had participated in significant M&A activity over the last year suggests:
Synergy correlates strongly with the financial success of a merger.
When IT is part of the due diligence process, it has a direct correlation with post-deal synergies.
Mark A. Walsh and Asish Ramchandran, principals with Deloitte Consulting LLP, in their latest point of view, "Ignorance is not bliss – IT due diligence is fundamental for post-merger synergy," discuss why IT due diligence is elemental for post-merger synergy. It prompts the early identification of potential synergies, empowers business executives to take advantage of the important role IT plays in realizing these synergies, and supports the collaboration of business leadership and IT in determining an effective integration strategy. Without IT due diligence, certain risks — such as integration barriers, long lead times, deal-breaking costs and contract noncompliance — are not likely to be identified.
To learn about identifying synergies effectively during the due diligence process, download the attachment (PDF; 155 KB) below.
Traditional approaches to M&A due diligence may allow vital issues in today’s cross-border M&A environment to fall through the cracks, potentially giving acquirers an incomplete, and possibly faulty, view of the deal landscape. In some cases, basic information required to make deal decisions simply doesn’t exist or is of questionable quality. Against these odds, how can management make the best quality investment decisions?
In this article, "Old Habits Die Hard - Why a Refined Approach to M&A Due Diligence is Key," we discuss how savvy companies are adopting a more encompassing yet flexible approach to due diligence. This starts with a management decision framework that captures key diligence findings and translates them into a negotiating strategy and deal terms aimed at managing risk. Such a framework is critically important to help maintain discipline throughout the process and make the most well-informed business decisions.
To learn more, click on the attachment below to download the full article (PDF; 159 KB).
We also found a few items of related interest at academic websites, such as:
So you have decided to purchase an existing business.Regardless of whether the deal is structured as an asset transaction, a stock transaction or a merger, make sure you know what you are getting into by requiring detailed information from the seller regarding its business operations and finances. The following is a checklist of information and documents you should review.
In connection with taking a company public, the underwriter and its legal counsel are required to undertake a rigorous investigation of the company that intends to go public. This is referred to as the "due diligence investigation." The goal of the due diligence investigation is to understand fully the business of the company, the risks and problems facing it, and to assure that the company's registration statement is complete and accurate.
The following checklist is intended to provide you with a general idea of the documents and information that you will have to produce to cooperate with the underwriter and its legal counsel in its due diligence investigation.
So you have been approached by a potential acquirer of your business. Regardless of whether the deal is structured as an asset transaction, a stock transaction, or a merger, you can expect that the acquirer will want to conduct a detailed "due diligence investigation" of your company's finances and operations. The following is a checklist of information and documents you can expect the acquirer will want to review.
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