Due Diligence
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DUE DILIGENCE Kavita Budhiraja Assistant Manager – Corporate Corporate Professionals (India) Private Limited
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Transcript of Due Diligence
DUE DILIGENCE
Kavita BudhirajaAssistant Manager – Corporate Corporate Professionals (India) Private Limited
DU
E DILIG
ENCE
Today's Agenda
Module I Understanding the concept
Module II Importance
Module III Segregation: Event based & Subject based
Module IV Flow of Work
Module V Practical Environment: Conducting Due Diligence
Module VI Decision variables
DU
E DILIG
ENCE
Module I Understanding the concept
UN
DERSTAN
DIN
G TH
E CON
CEPT
““Risk comes from not knowing what you’re doing.”Risk comes from not knowing what you’re doing.”
Warren Buffet,Warren Buffet,Chairman, Berkshire HathawayChairman, Berkshire Hathaway
UN
DERSTAN
DIN
G TH
E CON
CEPT
Due Diligence is the process of fact-finding, evaluation and analysis of data, intended to seek information about risks pertaining to a transaction/ entity, to enable informed decision by the person seeking the information.
UN
DERSTAN
DIN
G TH
E CON
CEPT
Due Diligence is the process of fact-finding, evaluation and analysis of data, intended to seek information about risks pertaining to a transaction/ entity, to enable informed decision by the person seeking the information.
DU
E DILIG
ENCE
Module II Importance
IMPO
RTANCE
Caveat Emptor : Let the buyer be beware
Confirming representation of facts and events: Businesses are not run on promises
Avoiding future conflicts
Identifying grey areas: Even existing stakeholders are ignorant about certain fallbacks
Analysis of data may range from ‘Watchdog’s eyes’ to ‘Bloodhound nose’, depending upon purpose of due-diligence
Identifying off-the-record issues, viz. contingent liabilities, siphoning off, vested interests, etc.
DU
E DILIG
ENCE
Module III Segregation: Event based & Subject based
TYPES OF D
UE D
ILIGEN
CE
TYPES OF D
UE D
ILIGEN
CEEVENT BASED DUE DILIGENCE
TYPES OF D
UE D
ILIGEN
CESUBJECT BASED DUE DILIGENCE
DU
E DILIG
ENCE
Module IV Flow of Work
WO
RK FLOW
DU
E DILIG
ENCE
Module V Practical Environment: Conducting Due Diligence
PRACTICAL ENVIRO
NM
ENT
Access restrictions
Complete Access Data Room e -Data Room
PRACTICAL ENVIRO
NM
ENT: CO
MPLETE ACCESS
COMPLETE ACCESS•All information is provided with free management access
•Copies of all information provided
•Regular information requests to update Client and Target of status of diligence
•While overall field work duration may be regulated, generally, timings are flexible and typically no restriction on team size
PRACTICAL ENVIRO
NM
ENT: DATA RO
OM
DATA ROOM•Controlled environment. Limited information and management access
•Typically, no copies provided. Time and effort required for inputting data
•Information requests and question lists are critical as further information and responses are dependent on such lists
•Generally overall duration and daily timings are regulated and team sizes are restricted
PRACTICAL ENVIRO
NM
ENT: E – DATA RO
OM
e - DATA ROOM•Similar to a physical data room, but information is set up on a website
•Most e-data rooms have restrictions on printing and copying. Time and effort required for inputting data
•Information requests and question lists are critical as further information and responses are dependent on such lists
•Fixed logins are allotted. Team sizes can be flexible if logins shared. Timings may or may not be regulated, though overall duration is fixed
DU
E DILIG
ENCE
Module VI Decision variables
DECISIO
N VARIABLES
• Assessment that the business is what it appears to be
• Qualitative and quantitative analysis on financial performance and to get a sense of normalised earnings
• Are there hidden liabilities/ onerous clauses in contracts/ other exposures, which may impact future earnings/ profitability
• Identify operational inefficiencies and what it will take to enhance
• Ascertaining unreported tax risks, may come out to be high enough to wipe off total investments
• Analyzing other entities in the group to check vested interests
• Verifying outstanding litigations and their possible impact on business and profitability
KEY ANALYSIS ISSUES
• Identification of potential deal breakers
• Secure information useful in valuation
• Negotiating price concessions
• Defining representations and warranties
• De-linking of vested interests and entities
• Integration opportunities
• Operational revamping
DECISIO
N VARIABLES
POSSIBLE IMPACTS
CASE STUDY
Case Study – 1 & 2
