Due dili
I am trying to learn about due diligence here, any help would be appreciated.
I do have some experience in due dili and my understanding is that essentially due diligence is answering questions you have about the target (in the case of M&A) by asking questions to management and by examining what non public info they made available to you.
Such questions can be: Who are the main costumers? How did they allocate overhead to a particular division? What explain the variation in profitability in a certain product?
You certainly wouldn't be auditing the company if its already done by a external firm would you? Do you hire a firm to audit the books of a private non audited firm before acquisition and would this be part of due diligence?
Is my understanding correct here? What is the whole process if there is one? Am I missing something and could you give me some examples?
The general process is as follows (PE perspective):
1) Retain counsel (Stroock), consultant (McK), Auditors (RSM), I-bank (GS), Appraisal Group (CBRE), etc.
2) Gain access to the data site and begin sifting through information on a very granular level and drafting questions in preparation for your site tour/management discussions
3) Site tours / discussions with management Usually entails 1-2 days with all management departments of the company.
While all of this is going on you generally have "all hands on deck" calls with a representative from each of your advisory groups and you go through check lists of deliverables
The process is very mundane but the exploratory/confirmatory DD is essential to determining what you can pay for the company and what exactly you are buying
Due diligence periods can last anywhere from 60-120 days
Let me know if you have any specific ?s
thanks. 1-Could you give me a few examples of typical questions (if there is such a thing)? 2-and things that you have seen/discovered during the due dili that impacted the value of the company? 3- If you're looking at a private unaudited company, do you typically get it audited prior to acquisition or do you just ask for a letter of guarantee by the vendor?
Here are a few department/category specific questions that would be included in my DD request list:
Real Estate 1. Number of stores that are leased/ground leased, with the average term of these leases. 2. Access to store-by-store sales and rent information.
Financial 1. Audited financial statements for three years and the accompanying notes
Accounting 1. Quarterly roll-forward of all reserve accounts including reserve releases (include vendor allowances, inventory, bad debt, returns, workers compensation, etc.
These are basic DD requests that are sent to the company that are usually addressed in the data site and during tour visits
Things like pension liabilities, lease restricitions, etc. impact the value of a company. For example, my group focuses on operating platforms with strong underlying real estate portfolios. Existing covenants and LL restrictions significantly affect the value that we could extract from the company. For our retail companies, vendor contracts/relationships affect the value of the business.
Private companies are always audited and a quality of earning is provided by your consulting/accounting advisor
Due Diligence - what is structured approach? (Originally Posted: 04/09/2014)
Hi WSO!
So I am second year PE analyst at a small team (but reasonably large AUM) and so far on the investments DD was led by the associate and I was performing random DD-related tasks that he gave me.
Lately I have been given a larger scale of responsibility, in particularly, commercial due diligence on potential targets is now my responsibility (of course with supervisory from above but still).
Now my question: can you recommend something to read about structuring DD properly? I mean, I have an idea from my experience, but I am thinking about some structured approach that can be turned into step plan of check list which could serve me as a guidance to make sure that I did not miss anything important.
I would be glad if you link me to a book, article, post or your own comments.
P.S. My PE fund invests both in infrastructure projects (toll roads, briges, airports, utilities) and companies (like traditional PE) so ideally I would ask more experienced people to also give me some advice regarding the difference in DD approach to those two.
Thank you!
I'm not an experienced PE professional by any means, but it might be worth checking out Chapter 8 of Applied Mergers & Acquisitions by UVa's Dean Bruner. Presents the DD process in a checklist-type format like you mention.
What exactly is "due diligence"? (Originally Posted: 09/17/2016)
Worked at a boutique IB last summer where I basically drafted reports on some of our client companies as well as those possibly involved in the M&A. A portion of this report involves pulling up their financial information and valuation metrics (EPS, Profit margin, etc). So naturally this means going to Yahoo Finance and copy pasting a bunch of stuff, or maybe digging a little deeper on industry reports if its private.
Could I write this down as "due diligence" on my resume? By no means did I actually go to their office and start auditing the statements, as some of the definitions online would imply.
yes
Well, I don't have much experience but my understanding of due dilligence is this: you doing your homework to make sure the company you are buying or selling is actually what they are made up to be.
This means looking at its debt filings/documents, any insurances that it has, employee stats etc. Of course all these are more micro stuff but the kind of DD you mentioned are probably more high level stuff and I guess can be considered DD if you push it to be.
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