Implies an activity involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care Also used to mean a required legal obligation although the term more commonly applies to a voluntary investigation Examples: Steps carried out by venture capitalists before and during each investment phase of a start-up company Precautionary steps taken by one company in deciding whether to acquire another i.e. evaluating whether the buy is good or bad.
Banking Industry - To act in a prudent manner in evaluating credit applications. Securities Market - Responsibility of underwriters to explain the details of new securities to interested purchasers. Legal Definition - A measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances; not measured by any absolute standard but depends on the relative facts of the special case."
Financial Statements:
Review and confirm the existence of assets, liabilities, and equity in the balance sheet to determine the financial health of the company based on the income statement. Determine quality and reliability of financial statements to gain a sense of contingencies beyond the financial statements. Check the potential future legal problems stemming from the target's past. Ensure paperwork of the deal is in order and that the structure of the transaction is appropriate.
Historical Financial Data Current Financial Data Forecasted Financial Information Business Plans Minutes of Directors Meetings and Management Meetings Audit Paper Work Files Contracts with Suppliers, Customers and Staff Confirmation/ Representations from Financiers, Debtors, etc.
Financial
Legal
Operational
Creditors
Vendors Customers Government Society
Should reflect a fair and independent analysis & evaluation of financial and commercial information Should ensure collection, analysis and interpretation of financial, commercial and tax information in detail Should provide properly reviewed and analyzed financial information to bidders and various stakeholders Should also provide a feedback on auditing of the special purpose accounts.
Analysis on the liability side includes accounts payable, taxes, and debt obligations must be closely examined
Gathering of information from the target company, Uncovering of the target companys strong and weak sides, relevant risks and advantages in connection with the transaction,
Identification
of
areas
where
representations
and
Documents verified
IT law and IT contracts Intellectual property rights Patents, copyrights, and other intellectual property-related documents Company law Financing Employment law Data protection law Consumer protection law General contract law Minutes and consents of the board of directors and shareholders
Confidentiality and invention assignment agreements with employees Tax and financial documents Legal disputes and other kinds of conflicts Marketing practices regulation National and EU-competition law Public procurement law.
Analysis includes an evaluation of the key employees, managers, independent contractors, suppliers and other factors necessary for the business to conduct normal
operations
Includes examining work centres, material flow, scrap generation, and inventory levels to identify improvements required to improve productivity and profitability Helps identify and implement changes necessary to increase EBITDA and increasing the multiples due to lower risk. Involves gathering information on:
New product or service creation Markets Competition Sales Targets People/Organizational matters
process of identifying all intellectual property assets, verifying ownership and ensuring that such assets are free of encumbrances for the intended business use is
Examples range from the ingredients and manufacturing process for coke, a closely guarded trade secret, to the many domestic and international trademarks owned by multinational conglomerates such as Tata, HUL,
Reliance, etc.
IT Due Diligence;
Involves scrutiny of IT systems and processes in use and ascertaining better ways of deriving value and leverage from IT assets
Involves:
Sending an IT request list to the acquired company Compiling an onsite discovery process outline Conducting a review of the requested materials Scheduling and coordinating the onsite visit
Establishing a link between organizational objectives and the HR function Determining HR's influence on the skills and motivation of the workforce
Areas covered
Organizational culture Executive compensation and golden parachute contracts Collective bargaining agreements and potential change of ownership liabilities Defined benefit and contribution pension plans Postretirement benefits Retention and severance plans Health and welfare insurance structure and reserves HR functional structure and service delivery HR Information System (HRIS) and Employment Litigation
Litigation Analysis
When one company sells or otherwise transfers all its assets to another company, the successor is not liable for the debts and tort liabilities of the predecessor. Successor may be liable, however, under the following circumstances:
Employees -- including current, past, or prospective employees or unionsmight sue over: breach of employment contract defamation discrimination employment conditions harassment/humiliation pension, welfare, or other employee benefits wrongful termination
environmental law
health and safety law
Proxy contents
Recapitalization
Insider trading
antitrust (in suits brought by suppliers) business interference contract disputes copyright/patent infringement deceptive trade practices
Helps avoid:
Can lead to significant unbudgeted liabilities and the diversion of time and energy of key executives Helps identify fictitious bills and fictitious originals created such as the signature-authority list. Helps identify dormant bank accounts for they are a breeding ground for manipulative practices. Unexpected voiding of invoices from the organizations accounts receivable system should be investigated, particularly if your organization is structured so that people who have the ability to void an invoice also have the ability to receive or issue cheques
Record retention policies are often advocated across countries as a reliable tool of reference.
Helps ensure that the organization is in compliance with applicable law Depending on the nature and size of an organization, professional advisors should be engaged to evaluate the laws and regulations as applicable, and to help management design a due diligence plan Compliance can be achieved in an orderly, cost-effective and timely manner
Involves due diligence of key contracts and agreements, and summarizing and cross-referencing
Critical for future reference Help in avoiding inadvertent conflicts.
Helps to get tuned to the rapid shift from manual system infrastructure to technology driven infrastructure. Ensures adherence to regulatory compliance that are coming into force.
Strong need to initiate ongoing monitoring of the operations and plans of key customers and suppliers as can reveal important information on its current financial and operational status and near-term future events. Also reveal a deteriorating financial condition in advance.
Have members with first hand experience in the industry to which the target belongs Have members with expertise in different areas such as HR specialists, Functional area managers, individuals with knowledge of national culture, etc. Capable of quickly identifying both the positive and negative aspects of the property to be acquired. Willing to carry out a site visit to evaluate the current condition of the assets to be acquired; both the physical assets as well as the personnel Have members who possess excellent negotiation skills Have people who have time to lead the project and serve as team members
Ensure that the diligence team is co-located within a secure environment, such as a corporate headquarters or closer to the target Be familiar with the strategic and financial rationale behind the acquisition Train the team to identify and home in on specific issues Develop and communicate rules of engagement between the diligence team and the target company Make available analytical tools and techniques so the team can rapidly get its arms around potential synergies and integration challenges Healthy flow of information
Thank you!