Team Work During A Due Diligence Process

Coordination between different due diligence teams is proving to be vital for a successful M&A transaction

During a M&A transaction either or both parties may engage different teams to carry out buy side and sell side due diligences under different topics. Such diligences may be centered around the following topics depending on the sector of the target company:

·      Financial due diligence
·      Legal due diligence
·      Tax due diligence
·      Fraud compliance due diligence
·      Operational due diligence
·      IT due diligence

So many different topics and different teams having one single goal that is to identify and analyze issues of importance and risk. The findings of all of these due diligence work have a significant effect on the decision of the parties, the conditions of the deal, the details of the legal documentation and the post acquisition action plan.

Most of these findings regardless of the buy or sell side aspect of the work lead to a common question; what is my exposure and how would this finding economically affect the company or process.

Imagine the exposure of an invalid sales agreement that has been found by the legal due diligence team. The first thing the parties would want to know is the volume of sales made to that customer under this invalid agreement with all the discounts involved to understand what would happen if this customer was not active after the acquisition. In order to answer this question the financial due diligence team needs to be made aware of this finding.

Or imagine a finding regarding the miscalculation of certain payroll. The financial due diligence team has to be in touch with the tax due diligence team for them to calculate the related tax risk.

Think of another finding by the operational due diligence team such as the premises being too limited in space for the newly anticipated machines to be ordered and installed. They would have to communicate with the financial due diligence team to understand the square meter cost of the existing premises and calculate the cost of the extra space that needs to be rented next to the existing plant.

The coordination between the different due diligence teams is in general undertaken by the advisors of the acquirer or the seller. However, due diligence teams with high awareness for quantifying their findings and good team work capabilities may significantly enhance the success of the transaction. This is the reason why, in Cerebra we allocate time and steps for meetings with the other due diligence teams and analyze their results in the scope of our financial due diligence work.

Ömer Tunabas