Due diligence and vendor due diligence
True to the motto ‘All that glitters is not gold’, corporate acquisitions or share purchases often turn out to be an unpleasant surprise after the acquisition. If the strengths, weaknesses, opportunities and risks of the target enterprise were not sufficiently audited, analysed and evaluated, then this can have a serious negative economic impact for the purchaser. In the worst case, the management board or top management of the purchaser could be confronted with warranty liability from the purchase agreement due to a lack of commercial due diligence.
The due diligence process on the buyer’s side (buyer’s DD) or the vendor’s side (vendor DD) thus plays a central role in the scope of the planned transaction. In addition to classic financial and (fiscal) legal investigations, the focus of a due diligence is above all auditing and evaluating the operative risks and value-added potentials (operational DD). In addition to the required return on equity capital and sustainable cash flows, this aspect plays a central role, especially for private equity investors and holding companies; after all, the future appreciation potential, and the exit strategy related to it, is authoritative for completing a transaction for this group of purchasers.
The objective of buyer‘s due diligence to establish a founded decision-making basis tailored to the group of purchasers in question (financial or strategic investors). BDO places the focus here on identifying deal-breakers and discovering opportunities and risks that affect the purchase price and the evaluation of the target company, on the one hand, and on the exemption and warranty provisions in the purchase agreement, on the other.
The focus of vendor due diligence in contrast is on identifying risks and possibly eliminating these risks in advance of a planned transaction. BDO supports the vendor by providing a vendor DD report which meets the different information needs of the respective potential purchaser group. Our ultimate objective here is to protect the vendor against negative surprises in the scope of a buyer’s due diligence process.