Diligentiam will not only identify Red Flags within an organization, we will identify
Green Flags that signal where additional revenue and upside value may exist for our client. Once this process is completed, Diligentiam will help our clients contemplate the deal structure. Diligentiam will handle initial communications with the seller representative.
Every buyer has a different reason surrounding why they want to purchase another company.
We at Diligentiam have categorized these reasons into three broad categories: financial buyers,
asset buyers and synergistic buyers.
Financial buyers are interested in the subject’s income statement, earning stream and balance sheet, along with the overall goodwill of the company. A Diligentiam Comprehensive M&A analysis for the financial buyer most often includes the following:
- Financial Statement Review
- Liability and Exposure Analysis
- Management, Personnel and Operations Review
- Tax and Accounting Analysis
- Legal Compliance Review
- Document and Transaction review
- Supply Chain and Client Contract Review
Asset buyers tend to focus on selling price and will attempt to determine the worth of a company based on its asset value. A Diligentiam study will establish the target company’s value based on GAAP rules and concepts. Diligentiam will perform appraisals on assets and provide a MACRS based depreciation schedule, for tax planning purposes.
Limiting exposure to liabilities is exceedingly important in an M&A transaction, but all too often, many are unnoticed. Many due diligence teams provide a buyer with the possibilities of various liabilities; however, the problem is many liabilities are not identified nor recognized. Diligentiam delivers a comprehensive analysis which can provide the buyer with insights into the hidden liabilities and increased costs involving the target company by considering past products or services, leases and property rights, lawsuits or violations, contracts and agreements, or lack thereof. Our due diligence team can analyze, assess and provide a strategy to minimize any exposure of liability to the buyer. Diligentiam provides the buyer with the necessary due diligence to find hidden assets as well as liabilities not listed on a P&L.
A Synergistic Buyer is looking to leverage the capabilities of the target company to complement their own. They want to see an increase in the performance of the independent companies that are merging. In many cases, buyers attempt to accomplish cost saving synergy by eliminating duplicate overhead. Diligentiam will perform a Topgrading (Dr. Bradford D. Smart) analysis of all employees to ensure that “A” (top 10% percentile) players are identified and retained. Diligentiam will provide an employee matrix that will identify A, B and C level employees. Consolidation of vendors and negotiation of terms, shared resources, operating efficiencies, and distribution strategies are more examples of cost saving synergies which should be analyzed through the due diligence process. This will be crucial in accomplishing a horizontal integration of the organizations that can eliminate duplicate overhead.
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Buyers looking to purchase a company, either for their key personnel, their book of business, or the location of the business are often disappointed when the key personnel leave the company after the transaction has taken place or the location leased to the seller will not be renewed. Situations like this occur all too often because of insufficient due diligence and the human factor of an M&A. Diligentiam can provide a buyer with an analysis of key personnel contracts and likelihood of continuing with business after purchase. It is important that if a buyer is looking at a target for key personnel, customers, key suppliers or location that it will still be there after the transaction has been completed.