Due Diligence to improve transaction profitability

Experience shows that the companies which conducted due diligence work when making acquisitions improved the profitability of the transaction.

 

Due Diligence Mickey Blumenthal

Managing partner

Find out more about Mickey Blumenthal

Fahn Kanne Consulting understands that the acquisition of a company without performance of a due diligence is like buying the proverbial "pig in a poke"

  1. Business consultancy

Our business consultancy team is comprised of experienced experts who fully understand mergers & acquisitions.

Our approach revolves around identification of the opportunities and threats, with a goal of maximizing the value received when compared with the cost of the transaction.  The professional staff of the firm generates value by giving practical suggestions and not by confirming what you already know.

What is a due diligence?

An accounting – financial due diligence is an appraisal of the major areas of activity of the acquired business.  This examination includes a review of the accounting – economic aspects of the business being acquired, as well as an analysis of its financial statements, in order to identify and quantify risks on the one hand, and on the other, to identify the potential of the acquired business for the future purchasers.

What is scrutinized as part of the due diligence?

  • An assessment of the significant criteria for the success of the business
  • An assessment of the financial and operational risks
  • An analysis of the financial statements of the business
  • An assessment of the sales, marketing frameworks and the business strategy
  • Verifying the reliability of the historic data
  • Ascertaining the reasonableness of the financial forecasts
  • Examining the financial fortitude of the business
  • Reviewing the legal and contractual aspects of the business
  • Assessing the level of management of the business and the quality of the managerial team

How does a due diligence reduce the risks and hidden liabilities in the acquisition of a business?

A due diligence reduces the risk to the investor in acquiring a company since the examination makes a fundamental check of a number of important parameters.  Upon the acquisition of a private company, the due diligence checks the accounting records, liabilities to employees, non-bank guarantees, the existence of hidden commitments, and the existence of surplus assets that the prior owners are attempting to remove from the company.

In general, identification of the intangible assets may have an impact on the accounting profit in the years following the acquisition.

Due diligence work on companies abroad

The concept of the due diligence is a global concept.  It is important to note that the accounting standards which businesses follow are also influenced by the reporting principles in effect in those same countries – and such principles may differ from country to country.  The level of supervision on the part of the authorities also differs from country to country.  Investors also have to take into account the local laws and regulations that have accounting ramifications that impact on the feasibility of the acquisition transaction.

The business cultural gaps that are evident in practically all transactions between investors coming from different cultures may have an impact on the nature of the due diligence.  In addition, it is worth noting that there are differences in the various countries between the procedures that apply to private companies and those that apply to public companies.

Therefore, it would be prudent for investors to ascertain the nature of the due diligence being performed when dealing with the acquisition of a foreign business or company so as to avoid any surprises in the process.

How are difficulties overcome when conducting a due diligence abroad?

The objective difficulties can be overcome by turning to the large international accounting networks that have branches in a large number of countries spanning the various continents, such as Fahn Kanne Consulting, a subsidiary of the accounting firm of Fahn Kanne & Co., the Israeli member firm of the Grant Thornton International accounting network.  The broad deployment of such a network grants the Israeli investor a distinct advantage in performing a due diligence among businesses and companies that are located overseas.