Introduction
Definition
Objectives
Benefits
Advantages
Risk profiling
Commitment & Legalities
The Importance Of Due Diligence
Corporate protection & risk mitigation
Informed judgement
Potential value
Specific purpose
Judicious Resource Utilization
Combing resources, capabilities and core competencies
Types Of Due Diligence
Financial
Accounting
Tax
Legal
Due Diligence in the M&A Process
Part of the jigsaw: how due diligence fits into an M&A transaction
What do we mean by due diligence?
What do due diligence practitioners do?
How due diligence should inform a transaction
When deals go wrong, is it the fault of due diligence? Introducing the ‘ten bad deals’ exercise (for discussion on day 2)
Issues in due diligence management – from the advisers, and the client’s, viewpoints
The vital importance of getting the brief right, at the outset … … and of the right balance between certainty and sensitivity
Can reports contain errors - and why?
Due Diligence Management: A Framework For Using Due Diligence
This M&A due diligence training course provides an introduction to valuation
How due diligence findings can go to price:
Supporting the basis of enterprise valuation
Feeding into every step in the equity bridge
Legal framework overview:
Why diligence is influenced by transaction structure?
How due diligence findings inform the legal agreements
Understand the language used in the reports
When due diligence can lead to a go/no go decision
Due Diligence in the M&A Transaction Process
Due diligence in M&A training looks at the principles of the M&A process, to give context to how diligence may fit in:
Phasing: the rationale for how data is released
Interaction with other areas of information provision such as teaser, information memorandum, tours/ site visits, management presentations
Review three main models for the delivery of due diligence:
The traditional process, with all buyers undertaking independent due diligence
Understand the potential risks of leaving diligence until late on
A process underpinned by vendor due diligence prepared ahead of the wider marketing:
The pros and cons of VDD
Vendor assistance services:
Support the target’s financial team/ Financial presentation in a form suitable to facilitate the buyer’s due diligence
Case studies showing the strengths and weaknesses of each approach
Tradecraft: how well-planned due diligence supports a well-run transaction
Costs and who pays
Investigation and Discovery: The Key Areas for Due Diligence Investigation
Introduction:
How does Warren Buffett approach due diligence? Lessons we can learn
Principles to guide your process
Seven Deadly Sins - traps to avoid
Three main areas of due diligence common to most transactions:
Commercial - supported by two case studies
Legal - supported by example legal findings
Tax
Financial due diligence - introduction:
Why can’t we rely on the audit? Explanation of differences
Typical scope and areas of focus
Getting the output right: how to address sensitivities and uncertainty
Traps to avoid: examples of inaccuracies which the market managed to overlook
Financial Due Diligence - Detail
FDD interaction with valuation:
At the enterprise value level
The whole equity bridge
Introducing FDD case study: the bridge before and after final DD
What constitutes quality of earnings?
When is EBITDA, not EBITDA? Three ways of looking beyond the reported figure, and how FDD can help
Case studies – how to calculate ‘reference’ EBITDA
Profit-flattering: tricks to look out for
Going beyond profit to cash flow: cash conversion, plus tricks to flatter cash flow
FDD and the balance sheet: where to start
How FDD reformats the reported balance sheet into a reference document
The intrinsic difficulty of dealing with undefined (though broadly understood) terms
Focus on fixed asset quality and Capex:
Example - what if promised capex has not been undertaken
FDD and the key price adjustments:
Debt - what exactly constitutes debt?
Cash - when may cash not be cash?
Working capital - understand the significance of this potentially complicated and tricky area
Worked examples/exercises of how to calculate each
Summary: buyer vs seller, and why this can become adversarial
Diligence aimed at post-deal planning
Operational analysis, e.g. benchmarking and scope for improvement
Synergies analysis, costs and benefits
Integration planning
Specialist areas of diligence, and when they may be required
Three common areas, often left until ‘too’ late:
Human resources, a sadly undervalued area
Information Technology – on several levels
Property, a feature of almost every transaction
This M&A due diligence course explores two new areas which have recently grown in significance
ESG: diligence on the target’s environmental, social and governance policies
Cyber security: diligence that assesses resilience against cyberattack, and the potential downside
Further specialist areas also addressed in this M&A due diligence training:
Plant and equipment
Stock
Resources/reserves
Patents, technology and IP
Contracts
Environmental
Insurance
Regulatory compliance
Pensions
Brand strength
Customer referencing
Lastly - reputational due diligence- the potential value of truly understanding who you are dealing with
Exercise: Ten bad deals – to what extent was bad due diligence part of the problem?
Solutions: Dealing With Due Diligence Findings
Due diligence and headline terms: revisiting key assumptions
Time for the adviser to step up
What is now needed from diligence providers
Helping the client assess the deal:
Achieving strategic intent
Value creation
Integration and fit
Value at every level
If the parties are apart: Bridging a gap in value
Due diligence and price
Drawing on all findings (beyond cash/debt and working capital) which could go to value
Making sure the legal agreement correctly captures the agreed financial terms
Two main methods:
Completion accounts
Locked box
Calculating the profit ‘ticker’
Guidance on when each method is applicable
Due diligence and the legal agreement
Introducing the legal framework
Highlighting the areas that matter
Legal solutions to diligence findings:
Retentions, holdbacks and escrows
Indemnities arising from diligence findings
The SPA and the disclosure letter
How this interact with due diligence
The importance of disclosure – and of focusing on any new information
Warranties in the SPA: can they be relied upon?
Limitations
Making claims
Discussion: Warranties or due diligence?
The utility of warranty insurance
Scope And Objectives
Mutually expressed purpose
Transversal analysis: financial and operational due diligence
How to structure a due diligence analysis?
Technical and Commercial Feasibility Assessment
Resource availability vs Business synergy
Legal compliance and liability
Assessment
Risk quantification and value assessment
Viability of Operations
Liquidity
Tax position/structure and implications
Overvalued assets and under recorded liabilities
Hidden assets and liabilities
Management quality and key personnel identification
Post Acquisition Plan Preparation
Integral Components
Harnessing and sustaining augmented benefits
Retaining a flexible business arrangement
Establishing the value proposition post acquisition
Utilizing core competencies conjunctively to harness & sustain advantage
Cultivating and Entrenching organizational value systems
Task Prioritization
Establishing Critical Priorities
Resource deployment & strategic objective synergy
Harnessing Industry Expertise
Identifying important business units and priorities
Assessing the value proposition post acquisition
Segmented skills analysis
Information security and risk management
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