Due diligence assesses the performance of a business
The Due Diligence is a method of checking a plant for certain facts in detail. Due diligence is carried out when there are operational deviations, when a company acquisition is to be carried out, but also when borrowing is used as a template for bank documents and company announcements.
Ensuring a second-party audit in all areas of due diligence coupled with independence gives you a profound way to evaluate the condition of a business.
The following areas can be performed during a due diligence:
(in the financial area, these are carried out in collaboration with Synercon)
• Technical Due Diligence
• Financial due diligence
• Economic due diligence
• Legal Due Diligence
A detailed description of due diligence (according to Wikipedia)
Practical implementation of due diligence
For actual implementation of the DD, a data room is set up by the company to be sold. This data room provides all the documents that the company to be sold wants to make available to the buying company.
Analysis focuses of a due diligence examination
If a company wants to buy or take over another company or part of an enterprise, a valuation (SWOT analysis) of the company is usually carried out beforehand. The focus should not be on the standardized processing of checklists, but on the basis of the acquisition goals and investment hypotheses of the potential purchaser, a work plan should be developed that primarily examines the initial hypotheses.
With regard to the analysis focus for the execution of a due diligence, a distinction can be made between buying / selling and buying / selling between the view of financial investors and strategic investors.
Analysis focuses from the point of view of strategic investors
• Qualification of employees and their willingness to change
• Presence of clear goals of the company or part of the business
• Clear distribution of budgets
• Closed or open information policy and corporate communications in the home
• Documented process flows and process orientation
• Level of customer satisfaction and presence of a measuring instrument
• Level of employee satisfaction and presence of an employee survey
• Evaluate the results and balance sheets of the company
Analysis focuses from the point of view of financial investors
• Quality of management and leaders
• Assessment of the social and social responsibility / image of the company in public
Seasonality of results, working capital and cash flows
• Net debt taking into account off-balance liabilities, contingent liabilities, undervaluation of financial liabilities and overvaluation of assets
• Assessment of the existence of quality management in the home
• Analysis and assessment of legal, especially tax, labor and corporate law, corporate structures for the purpose of risk analysis and design optimization.
Focus of analysis from the point of view of Sharia-compliant financial investors
• Identification of non-sharia compliant customers, suppliers
• Identification of interest elements in contracts such as: Interest on loans, default interest, etc.
As the list of criteria shows, the earning power of the company alone plays a rather subordinate role. More important - especially for private equity investors - are the soft factors, such as the quality of the reporting (DD report) or the much-vaunted clear allocation of budgets.
The results are summarized in a Dataroom report for the buyer. It indicates the perceived strengths and weaknesses of the company to be sold. Quantifiable results are included in the company valuation and thus the determination of the offer price of the acquirer. By contrast, unquantifiable results lead to demands for exemption statements and warranties in the company purchase agreement.
Outline of a due diligence report (example)
1. audit assignment
2. audit scope
3. Basic information about the intended transaction
4. Purpose and purpose of the transaction
a) the legal situation (legal due diligence)
b) the tax situation (tax due diligence)
c) the financial situation (financial due diligence)
d) market, industry and strategy (market / commercial due diligence)
e) environmental compatibility (Environmental Due Diligence)
f) Insurance cover (Insurance Due Diligence)
g) Technical (Technical Due Diligence)
h) the employee situation (human resources due diligence)
6. Summary result
7. concluding remark
Since the reports are usually written by different consultants, it is unlikely that different functional due diligence results will be summarized in one report.