WHAT IS THE MAIN PURPOSE OF DUE DILIGENCE?
According to 38% of respondents of a study by RRD and merger market Just over a fifth said that due diligence’s main function was to gain a better understanding of the target, while smaller percentages felt the main goal was to get better payment terms (16%), change legal structures of deals, or confirm business plans.
Finding and quantifying risk is still critical to due diligence, particularly with investor capital on the line.
Digging into the financials can certainly bring dividends when it comes to a company’s purchase price. Take the example of UK-based Hikma Pharmaceuticals in its offer for Boehringer Ingelheim’s US generics business. After due diligence revealed lower-than-expected 2015 earnings at Boehringer, Hikma lowered its price by US$535m, Reuters reported.
WHAT PARTS OF DUE DILIGENCE MOST CONCERNING A DEAL’S VALUE?
Reviewing company financials is one of the main keys to maximizing a deal’s value, according to half of the respondents, while 36% believe the quality of earnings is also vital.
Just under one-quarter of respondents think analysing the target’s position in the market is one of the top two things to consider for deal value, while only 14% think the same for compliance issues. Regulatory concerns are more closely linked to deal value in specific sectors such as energy.
WHAT FUTURE RISKS ARE MOST AFRAID SCARY OF OVERLOOKING DURING DUE DILIGENCE
A majority of respondents (58%) said they were most afraid of overlooking the risk of pending legal issues, while just under half of respondents expressed concern about failing to notice company culture issues (48%), financial problems (48%), and negative synergies (46%).
For an acquirer, unresolved legal issues at a target firm could affect its bottom line or business reputation, and the problems may transfer to the acquirer after the deal is complete.
The aim of due diligence is to check the valuation of assets and liabilities, assess the risks within a business and identify areas for further investigation. Doing this enables an investor or purchaser to make informed investment decisions. Bowarr Management DIFC has highly professional specialists which can smooth the process and save your time.