due diligence

due diligence - Chapter 31 DUE DILIGENCE 31.01...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 31 DUE DILIGENCE § 31.01 What Is Due Diligence? [AJ Why Perform Due Diligence? [Bl When to Perform Due Diligence [Cl Forms of Due Diligence [IJ Legal Due Diligence [2] Business Due Diligence [3] Strategic Due Diligence (0] Who Performs Due Diligence? [E] Where to Get Information § 31.02 The Due Diligence Process [A] Establish. a Plan and Assemble the Team [B] Identify Key Issues [C] Prepare the Information Request and Obtain Information [I] The Preliminary Information Request [2] The Detailed Due Diligence Review [3] Meeting with Management [4] Follow-Up Questions [01 Translate Issues into Value, Structure, and Terms [E] Resolve Issues [FI Plan for Follow-Up, Integration, or Transition § 31.03 Summary § 31.01 WHAT IS DUE DILIGENCE? One of the most overlooked and poorly executed aspects of any M&A or restructuring transaction is due diligence. Transactions are frequently penciled out on paper, models are run, and high-level strategic discussions are held. Yet, often, little attention is paid to the validation of the underpinnings of the deal through sound due diligence. Due diligence not only serves to unearth potential problems in a transaction, it also validates one's thinking and provides a roadmap for ensuring that post-transaction follow-up is well-executed. Due diligence is the methodical investigation of all the legal, financial and strategic facets of a company and a transaction. It is a process that involves obtaining and verifying very detailed information about a company that is not usually found in its public documents. 685
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
§ 31.01[A] STRUCTURING MERGERS & ACQUISITIONS [A] Why Perform Due Diligence? Companies, bankers, accountants, lawyers and consultants perform due diligence for a variety of reasons. However, in concept, due diligence has three central purposes: 1. Validate Transaction Assumptions: Initial deal assumptions are often based on public information. Due diligence allows one to verify the initial assumptions based on confidential discussions and documents. As an example, in the sale of a company, the seller must "package" the company to sell it. Therefore, most sales memoranda will show the company in a positive light that paints an attractive future for the business. As we know, this is often not the case, and most companies have their unique problems, skeletons and warts. The due diligence process helps ensure that any representations the seller makes are true, for example, that the financial statements accurately reflect the historical financial perfor- mance of the company. As one performs due diligence, it enables us to better understand the risks inherent in the transaction and assume those risks based on an informed decision. Finally, due diligence allows us to truly understand the extent of the opportunity. 2. Unearth Possible Problems: In the course of validating initial assump- tions, by digging deeper into a company's legal and financial framework, and by challenging strategic assumptions, it is often possible to identify errors, omissions or factual misrepresentations. In addition, there may be items not previously disclosed that are material to the transaction.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 21

due diligence - Chapter 31 DUE DILIGENCE 31.01...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online