Corporate finance is a multi-faceted jewel. Lumped under that one heading are the very different disciplines of Mergers and Acquisitions, Valuations, Financial Modelling and more. And hiding away at the back, often forgotten in the euphoric rush of an acquisition is Due Diligence.
Why Due Diligence Matters in Corporate Finance
We all know the term, and the seemingly boring checks and investigations it implies, but due diligence tends not to get the attention it deserves. However in the world of corporate finance it’s arguably one of the most important procedures, particularly during any potential business acquisition.
As the banking crisis has unfolded over the last few years, tales of poor or non-existent due diligence procedures emerged relating to numerous disastrous deals. It’s always best to get a third party to carry out due diligence procedures. An accountancy firm that has a dedicated corporate finance department should offer specialist due diligence teams who can help make sure you don’t come a cropper.
Key Components of a Thorough Due Diligence
At its heart due diligence is about investigation, verification and risk assessment. Although a company may have disclosed its situation and the state of its various departments, problems often arise during the due diligence procedures. Often the target company hasn’t disclosed everything, either due to direct negligence or a lack of knowledge and a proper due diligence investigation should expose any undisclosed information.
As a buyer you will also often have responsibility to others, such as shareholders, and if you haven’t carried out a thorough due diligence investigation and the deal turns out to have negative results then you could find yourself liable for them.
Who Should Conduct Due Diligence and When
Due diligence should be undertaken by any company looking to acquire another, but should seriously be considered if you are the vendor or target company too.
It’s possible to employ the services of corporate finance specialists and get them to undertake a full investigation into your company. This will help identify weaknesses and areas for concern, which will allow you to address these before the sale. The information revealed in a vendor due diligence report can help protect the value of your company, and stop any potential issues becoming bargaining tools for the acquirer.
Best Practices for Vendors During Due Diligence
As a vendor it’s important that you be as transparent and open as possible during the due diligence procedure. Ultimately anything you attempt to conceal will only have a negative effect on the sale. It could result in a lower deal, substantial changes to the agreement or the complete failure of the sale, and nobody wants that.
Ensuring Successful Mergers and Acquisitions
If you’re in the process of a merger or acquisition, whether as a buyer or vendor it’s vital that correct due diligence procedures are adhered to. A company that offers specialist due diligence services can help with this time consuming and complicated process. They know the questions to ask and how to get the answers, and will tailor each investigation to the specific deal, as no two deals are the same.
If you want your business acquisition to go smoothly make sure you do your due diligence. It’s not glamorous or exciting but without it you could be in for a nasty shock.
For more information and specialist advice on your Corporate Finance needs visit http://www.bakertilly.co.uk/services/finance/corporate-finance.aspx
