Due Diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party. Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer’s ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction. In addition to flagging up downside risks to a deal, an effective due diligence should also uncover potential upside that can be exploited, e.g. operational improvements, cost savings, revenue maximisation, turnaround opportunities, capital optimisation and better asset utilisation. Thus, a properly executed pre-acquisition due diligence enhances a deal by uncovering hidden values and other reasons that may inspire the potential acquirer to pursue a deal more aggressively.
Due Diligence will enable a buyer to accurately assess the following:
- When acquiring a business, will the buyer be able to realize unique competitive advantages from the acquisition?
- Are the employees of the target company subject to noncompetition, non-solicitation and confidentiality obligations?
- What third-party consents will need to be obtained in connection with a sale of the business?
- Is the target company a party to material contracts (including supply, employment, license and distribution agreements) that may not be assignable in connection with the transaction?
- Will the buyer be able to retain the key customers and employees of the business?
- How much working capital does the business require?
While there are significant financial and strategic benefits in an acquisition, it also brings substantial risks that need to be systematically identified and properly managed. Too often, acquirers may become overly enthusiastic in, or feel pressured into, closing a deal and end up glossing over potential pitfalls and giving in to too many negotiation points. Global merger statistics reveal that more than 60% of M&A destroy value for the acquirers. Some of these could have been avoided with effective pre-acquisition due diligence. HLB Hamt assists all types of due diligence which include System due diligence, Financial & Accounting due diligence, Information technology and Human resources due diligence.
HLB Hamt follows an approach for due diligence which starts with developing a program which specifies business purpose of the acquisition, its critical goals and objectives. Each assignment is handled by a team of professionals with good enough experience to handle the work. A timetable is setup for completing each step of the assignment. We set up criteria on what and how information will be collected and retained. A realistic and feasible pragmatic approach is developed to document conversations, documents received and analysis performed. In the whole process issues are identified and communicated as and when discovered and all this happens prior to the issuance of our written report.
We at HLB Hamt use proprietary Intelligence for successful transactions. We enhance your probability of success by a methodology we follow. It begins with understanding your objectives as in what exactly you want from this assignment. Then develop procedures that are mutually agreed upon. After having more than 2000 regional clients we have developed considerable regional intelligence which enables us to provide professional strategic, commercial and financial due diligence. Commercial and financial issues to your strategic objectives are taken care by providing regular reporting. We facilitate decision making and transaction negotiations. Our work doesn’t end here we also assist with post transaction implementation procedures.