In M&A advisory, Due Diligence is an in-depth examination and analysis of a company's financial, legal, operational, and commercial aspects. It is an essential step that potential buyers, investors, or companies undertake before finalising a deal. The objective of due diligence is to uncover potential risks, opportunities, and value drivers associated with the target business.
A buyer or funder protects their position and gains true insight into the opportunity. Ensuring any decision regarding the acquisition or investment is an informed one maximises the chances of adding value to a transaction.
This is usually undertaken when buying another business - taking a deep dive into financial records to analyse key financial statements, cash flows, revenue streams, and historical performance. This examination can evaluate the company's financial health, identify any potential financial risks, and assess the accuracy of reported financial data. This knowledge provides peace of mind ahead of the transaction.
This type of due diligence assesses the legal aspects of a business ahead of a sale. It conducts a rigorous review of legal documents, contracts, licenses, and regulatory compliance records, whereby identified risk and liabilities are mitigated in the purchase agreement (such as warranty/indemnity protection). This process uncovers any legal liabilities, pending litigations, or potential risks that could impact the target business's operations or reputation. Legal Due Diligence also covers employment contact reviews for TUPE, IP protection and trademark review.
This is a comprehensive assessment to evaluate the commercial viability and future potential of a target business. Commercial due diligence examines market dynamics, competitive landscape, customer relationships, growth opportunities, and industry trends. The process offers a clear understanding of the company's market position and growth prospects to facilitate a more successful and strategic transaction.
The primary aim of technical due diligence is to uncover potential technical risks, vulnerabilities, and opportunities that could impact the success of the transaction. Perhaps more relevant to specific sectors, this type of due diligence examines technological systems, IT architecture, hardware, and intellectual property - allowing insight into possible risks, and vulnerabilities, as well as opportunities and the future viability of a tech IP.
Due Diligence services are produced using data. Depending on the type of due diligence taking place, access to a company's financial records, contract details, and historical performance may all be required. Typically, a data room is established to collate everything needed for the process.
Challenges may appear when access to information is limited, coordination between relevant stakeholders breaks down, or it is not possible to balance confidentiality with transparency. Adapting best practices in regard to due diligence - such as clear communication, thorough documentation, the ability to adapt to industry specifics, and appointing a skilled and experienced team - will ensure the process can run smoothly.
Reversing the due diligence process turns the focus inward. It is a process that analyses your own financial and legal histories and current situation, allowing any risks or liabilities to come to light prior to a 'regular' due diligence process being carried out by acquiring or investing party. These can be addressed and prevent renegotiation from the buyer or funder.
Considering reverse due diligence allows businesses to pre-emptively address potential challenges, enhance negotiating leverage, and make more informed decisions about the partnership, fostering a smoother transition and ultimately contributing to the long-term success of the merged entities.
Case study
Rawlings & Son Ltd acquired Paper Bag Co, both leading packaging specialists in the Southwest.
GS Verde's multidiscipline dealmakers worked as a single team to support Rawlings & Son throughout the transaction. End-to-end support included legal and financial services, deal structuring, financial and legal due diligence, negotiating deal terms, and drafting new contracts and agreements.
"The acquisition provides Rawlings with the opportunity to develop our product offering, increase our service capacity, and expand our client base - realising our growth ambitions. Having the support of GS Verde's expert multidiscipline team for everything we needed allowed us to move forward with the transaction with confidence."
- Tom Wood, CEO, Rawlings & Son Ltd.
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Read more about buying a business
Any M&A transaction involves several key stages that must be managed effectively to ensure the best outcome for all parties - whether you are buying, selling, funding, or seeking investment.
For funder/investors
Comprehensive due diligence is often required as a condition of agreements. Accuracy and reliability are cornerstones of GS Verde's due diligence processes.
For acquirers
Stability and peace of mind are key when acquiring. Due Diligence is vital in determining viability of the deal and can allow for effective post-acquisition integration.
For sellers
GS Verde offers reverse due diligence as a recommended risk mitigation tool. Having that certainty of the outcome in the process is invaluable.
Total Staffing Solutions, a leading provider of agency staff within the health and care sectors, has successfully completed an Employee Ownership transaction advised on by The GS Verde Group.
Blues Electrical, a leading provider of electrical solutions, is pleased to announce the completion of a management buyout led by Dave Chandler, Chris Chandler, and Marc Gunter. Advised by GS Verde.
Stella Event Hire and Catering, an event hire company with 18 years of experience in catering and hospitality, has successfully raised growth capital in a deal advised on by GS Verde Group.
