Maximising Value from the Due Diligence Process

 

The current trading environment is presenting attractive opportunities for a number of businesses to grow through acquisition. We commonly find that some acquirers have a cavalier attitude to risk and overlook the value that can be realised during the due diligence process, quite often to their detriment.  Investing adequate time/resources and properly assessing the financial, legal or commercial aspects of the target business is paramount to securing value enhancement.

At Anderson Anderson & Brown LLP we encourage our clients to tailor their due diligence approach to de-risk their position and realise maximum value from the transaction in the following ways.

Strategic value – The due diligence provider must gain an understanding of the acquirer, how the target business fits with its growth strategy and how the target business will add value to operations.  Once this is clear, attention can then be put on ensuring safeguards are in place to avoid value erosion.

Value drivers and risks – Channelling efforts investigating risky aspects instead of following a full scope, tick box approach is recommended.  Due Diligence providers need to understand what drives value in the target, the sustainability of the target and how to secure longevity in the relationship between the acquirer and the target, early in the process.  Focussing on high-risk areas and value drivers may uncover potential deal breaking issues at an early stage.

Validate valuation – Use the due diligence process as the opportunity to validate the purchase price and transaction structure early in the process saving time and money in the long run.  If findings undermine the valuation, don’t ignore this, take action.

Collaborative diligence – Acquirers who insist on their due diligence providers liaising with each other achieve more from the process with reports and findings having joined up thinking.

Effective reporting – Spending resources on long form reports telling the acquirer what they already know about the business is pointless.  A key findings report focussing on the issues which matter should make important decisions easier.

Relying on warranties and indemnities – Making a claim can be time consuming, expensive and destroy relations with vendors who run the target post acquisition, so there is no substitute for comprehensive due diligence of risky areas.

Post acquisition integration – Due diligence normally highlights action points that are not critical, however, important enough to be addressed post completion.  A post acquisition integration plan provides the ideal opportunity to deal with issues highlighted by due diligence and ensure a smooth transition for the target.

It is vital that companies seek professional advice from experienced advisors at the outset, as they will control and add value to the process, assist in preparing the scope of work to ensure key risks are investigated and work with the purchaser and other diligence providers to ensure a smooth completion of the transaction.

For more information please contact Graeme Little (Graeme.little@aab.uk) or your usual AAB contact.

To find out more about Graeme and the Corporate Finance team, click here.