Strategy & Due Diligence
Once a potential buyer has expressed interest in a company or a business for sale, he will enter into a verification and analysis process, or due diligence, in order to have an overview of the company, but also risks related to the transaction.
Unlike a legal, tax or accounting due diligence which aim is to verify the accuracy of the data provided by the company, operational due diligence also confirmsstrategic and industrial logic of the deal: to increase its market share, to diversify its activity, to extend to new geographical areas, …
In practice, unlike a legal or accounting due diligence where the analysis will rely on well-established standards, operational due diligence is based on several elements and requires an appreciation of the very functioning of the process activity and the sectors in which society operates.
Firms often have the skills and the expertise needed to carry out an operational due diligence but not enough experience to lead it. External growth operations are often rare activities. The analysis, in a short term, of an asset to be bought, in addition to their operational daily work can be complicated. Yet writing a high quality report requires time and involvement, and it is one of the factors that may persuade the shareholders and potential financial partners of the legitimacy of the deal. The support of a consultant mastering sector issues and operational due diligence puts forward the most of operational team’s skills of the buyer or the seller.
Here are some important points for us:
Furnish a framework for analysis:
- Assign precisely topics to the different operational teams for transfered activity analysis, so as to limit the areas not covered and avoid duplicates
- Establish for each team a list of points to be deepened and hypotheses to verify in order to maximize the productivity of the work
Pilot the analysis day-to-day:
- Provide accurate milestones and check almost continuously the results by reorienting much needed analysis
- Make sure that any not covered subject by the items available in the data room are the subject of questions from the buyer and answers from the seller
Serve the different customers: board, stakeholders, financial partners:
- Build an attractive but realistic report for all customers.
- Build the business plans or the synergies assumptions on logical and understandable by a “novice in the industry” arguments, even offering two distinct scenarios: one conservative, the other more optimistic.
Anticipate difficulties specific to an assets deal*:
- Delineate precisely the scope of transfered operations. If any elements are not clear they should be clarified with the seller
- Secure collaborations with the seller through TSAs (Transition Services Agreements) or SLAs (Service Level Agreements) about essential services to the pursuit of the acquired business
- Identify strategic assets – patents, intellectual property, industrial licenses, contracts – not transfered, or which requires the consent of a third party. The access to those assets or their transfer will be a condition of closing.
Generally an “assets deal” concerns only a part or an activity of the company which does the transfer.
1 – BUSINESS PLAN BASES AND ASSUMPTIONS EVALUATION
2 – DETAILED CHECK VIA CONTRACTS WITH THE TARGET
3 – ENCRYPTION OF THE IMPACT ON COMPANY VALUE
- Review of the business plan (3-5 years)
- Identification of hypotheses to check
- If necessary, modeling (market / sales, M&S costs, industrial costs, product / service development costs)
- Due diligence report frame listing all points to check
- Distribution of report sections within the team
- Site and installation visits
- Interviews with designated managers
- Contacts with some key suppliers
- Contacts with certain key customers
- Securing business continuity:
- Adjustments of the acquirer organization
- Identification of Transition Services Agreements (TSAs) required
- Identification of potential “deal breakers”
- Draft of the Post Merger Integration roadmap
- Financial models adjustment
- Confirmation of major synergies, identification of secondary synergies and (re) quantification
- Estimated costs and delays of transfer / transition
- Estimation of elements related to price adjustment
- Consolidation of the impacts on deal financing