Due Diligence E-Book

William J. Gole

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 408

Veröffentlichungsjahr: 2009

Beschreibung

This nuts-and-bolts guide examines all aspects of an M&A due diligence--from coming to the decision to acquire a company, to who should be on the due diligence team, to the actual process and the final report and post-closing follow up. It advocates a focus on both risk mitigation and shareholder value creation, and emphasizes a holistic approach that spans from planning to post-acquisition integration. The tentative contents is: (1) Introduction; (2) Planning for value creation: growth strategy; (3) Engagement and pursuit; (4) Preparing for due diligence; (5) Validation of value: performing due diligence; (6) Assessment of due diligence results; (7) Optimizing value: post diligence negotiation; (8) Extracting value: post-transaction integration.

Leseprobe

Table of Contents

Title Page

Copyright Page

Preface

STEP-BY-STEP GUIDANCE

ORGANIZATION

Planning

Investigation

Execution

About the Authors

PART One - Planning

CHAPTER 1 - Introduction

OVERVIEW

PREVENTABLE CAUSES OF FAILURE

KEY SUCCESS FACTORS

DUE DILIGENCE AND VALUE CREATION

CHAPTER 2 - Planning for Value Creation Growth Strategy

INTRODUCTION

THE STRATEGIC PLANNING PROCESS

PROCESS OVERVIEW

CONCLUSION

CHAPTER 3 - Implementing the Growth Strategy

FROM IDENTIFICATION TO PURSUIT

IDENTIFICATION

QUALIFICATION

ENGAGEMENT

ASSESSMENT

PURSUIT

PART Two - Investigation

CHAPTER 4 - Preparing for Due Diligence

INTRODUCTION

ENVIRONMENTAL FACTORS

CREATION OF THE DUE DILIGENCE TEAM

DEVELOPMENT OF THE DUE DILIGENCE PROGRAM

PLANNING DUE DILIGENCE

APPENDIX 4A: DUE DILIGENCE CHECKLIST

CHAPTER 5 - Conducting the Due Diligence Review

INTRODUCTION

OVERVIEW OF TRANSACTION TYPES

COMPONENTS OF THE DUE DILIGENCE REVIEW

DUE DILIGENCE REVIEWS: AN OBJECTIVES-DRIVEN APPROACH

CONCLUSION

APPENDIX 5A: ILLUSTRATIVE FINAL PROCESS LETTER OUTLINE

APPENDIX 5B: ILLUSTRATIVE DATA ROOM INFORMATION LISTING

CHAPTER 6 - Reporting on Due Diligence Deliverables and Decisions

INTRODUCTION

ELIMINATION IN THE AUCTION PROCESS

THE NO-GO DECISION

RENEGOTIATIONS OF MAJOR TERMS

DECISION TO PROCEED

PART Three - Execution

CHAPTER 7 - Optimizing Value Translating Due Diligence Findings into Action

ACTING ON DUE DILIGENCE FINDINGS

MARKING UP THE DRAFT PURCHASE AGREEMENT

MANAGING CONTRACT NEGOTIATIONS

CLOSING

CHAPTER 8 - Integration Extracting Value and Mitigating Risk

DUAL FOCUS OF THE INTEGRATION EFFORT

INTEGRATION TEAM

INTEGRATION PLAN

MANAGEMENT OF THE INTEGRATION PROCESS

CONTINGENCY PLAN

HUMAN FACTORS

RECOMMENDATIONS FOR POSTACQUISITION MANAGEMENT

APPENDIX - What Is the Premerger Notification Program An Overview

Index

Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Gole, William J.

Due diligence : an M&A value creation approach / William J. Gole, Paul J. Hilger. p. cm. Includes index.

eISBN : 978-0-470-50280-8

1. Consolidation and merger of corporations. 2. Strategic planning. 3. Management. I. Hilger, Paul J., 1959- II. Title.

HD2746.5.G646 2009 658.1’ 62—dc22 2009005651

Preface

Few corporate transactions rival mergers and acquisitions (M&A) for their magnitude, complexity, and risk. Prospective acquirers, acutely aware of M&A’s mixed track record, seek to reduce risk by conducting a thorough examination of a business prior to closing a transaction, a process commonly known as a preacquisition due diligence review. Indeed, the words “due diligence” have become almost synonymous with risk mitigation.

Yet simply avoiding risk does not in itself ensure that an acquisition will succeed; many acquisitions of good companies still fail to create shareholder value for the acquirers. In our experience, we have found that acquirers are better served with a broader view of due diligence than traditionally held, one expanded to include both risk avoidance and value creation, and which guides the efforts of the acquiring organization throughout the entire transaction. We have based Due Diligence: An M&A Value Creation Approach on just such a holistic perspective, and believe that its application positions acquirers to optimally extract value from the transaction while avoiding preventable mistakes.

We are not seeking to minimize the importance of the risk assessment aspect of due diligence. Instead, we hope that the broader approach that this book advocates will allow those involved in the due diligence process to adopt the mind-set of investors as well as auditors, better aligning their organization’s efforts with the transaction’s underlying purpose: to create shareholder value for the acquirer.

STEP-BY-STEP GUIDANCE

We begin our discussion with a description of the strategic framework that should be in place prior to the initiation of a transaction; we then focus heavily on in-depth examination of the acquisition target prior to close; and, finally, we apply the results of that examination to the negotiation process and postclosing integration. Throughout the book, we emphasize and reinforce the following operating principles:

• Holistic due diligence. A cross-transactional perspective of risks and opportunities that spans the entire acquisition process, from preacquisition planning to postacquisition integration.

• Sound strategic framework. The fundamental basis and the touchstone for the acquirer’s investment objectives and growth initiatives.

• Integrated management. Cohesive teamwork characterized by top-down objectives and cross-functional organizational coordination.

• Purposeful behavior. Planning and findings that determine actions before, during, and following the close of the transaction.

• Explicit planning to create value. An investor mind-set that looks at all actions through the lens of how they will mitigate risk or create value.

ORGANIZATION

The book is organized in a manner that places the due diligence review in the broader context of the acquisition transaction. It reflects our view that due diligence is most effective when it is a seamless overlay on the acquisition process—flowing out of its preparatory stages and influencing the team’s subsequent behavior. We present the acquisition transaction as composed of the following stages:

• Establishing a growth strategy

• Screening and selecting candidates

• Establishing diligence objectives

• Validating value

• Developing actionable findings

• Negotiating and closing

• Integration

• Post-deal assessment

Holistic due diligence, in turn, is divided into three main activities, which define the book’s three parts:

1. Planning

2. Investigation

3. Execution

Planning

Transaction planning includes activities that underpin the decision to acquire and inform the acquisition team’s view of a prospective transaction’s risks and opportunities, beginning with the development of a strategic growth plan and including the initial evaluation and screening of potential acquisition targets.

Investigation

The book’s second part includes activities that traditionally are employed in the evaluation phase of the acquisition process. This includes the planning and execution of the review, as well as the communication of its findings and recommendations.

Execution

The third and final part of the book deals with the closing of the transaction and with postacquisition integration. It demonstrates how organizations can best translate due diligence findings into actions, with respect to both transaction structure and integration implementation.

During our collaboration on Due Diligence, we dedicated considerable thought to the question of how to share our experience in a way that is informative, useful, and readily accessible by those actually at work on live transactions. We understand how busy professionals are in today’s business environment and have a good sense of how much busier they become when working on an acquisition. So we wrote Due Diligence with an eye toward optimizing its usability. The chapters, as mentioned, replicate the transaction flow, so that readers can turn to the relevant phase to navigate through its process steps. The discussion within each section is compartmentalized into bulleted segments so readers can rapidly scan the segment headings for points of interest. Alternatively, a recap with cross-references (Key Points) is presented at the end of each chapter. Readers can start there, scan our bottom-line thoughts for that phase of the transaction, and then turn back to the more detailed discussion if desired. In addition, a detailed index is included at the end of the book for readers who need to locate information on the treatment of a specific topic. We also present numerous exhibits throughout the book, which readers may find helpful as templates, checklists, and reminders for the corresponding aspects of their transaction.

About the Authors

William J. Gole is a business consultant, educator, and author of professional books and continuing professional education courses for CPAs and other financial professionals. As Senior Vice President, Planning and Business Development for Thomson Healthcare, a large international publishing and communications company, he had responsibility for strategic planning and mergers and acquisitions activities from 1998 through 2004. Prior to that, Gole was a senior executive at a number of operating companies affiliated with Thomson Reuters, Inc. Gole also served as President of Frost & Sullivan, an international market research firm, in the early 1990s, and as Director of Publications at the AICPA in the mid-1980s. He initially entered the accounting profession in 1976 as a staff auditor with Coopers & Lybrand.

Paul J. Hilger is a business consultant and author with over two decades of experience as a financial executive. Over this period, in addition to his other operational responsibilities, he directed and managed the acquisition and divestiture of dozens of business properties. Hilger served as Chief Financial Officer of several divisions of Thomson Reuters, Inc., including Thomson Healthcare, Institute for Scientific Information, and Warren, Gorham & Lamont, from 1990 to 2007. Prior to Thomson Reuters, Hilger held a number of financial management positions with the McGraw-Hill Companies from 1984 to 1990. He began his career with Arthur Andersen & Co. in 1981.

Mr. Hilger and Mr. Gole have written Corporate Divestitures: A Mergers and Acquisitions Best Practices Guide, a book published in April 2008 by John Wiley & Sons, Inc., containing comprehensive coverage of the corporate divestiture process.

PART One

Planning

CHAPTER 1

Introduction

OVERVIEW

Mergers and Acquisitions: A Way of Corporate Life

Consider the following scenario. You take an end-of-weekend look at your e-mail, only to find a message from your division’s CEO about a certain company that is in play . . .

. . . The company’s founders have apparently decided that it’s time to sell their business and have retained a broker to advise them on their strategic alternatives. The broker contacted me and outlined the auction process that will be conducted. An offering memorandum will be distributed upon execution of a nondisclosure agreement. Participants will have two weeks to review the offering materials, after which nonbinding offers are expected. A selected group of bidders will be invited into the second round, which will consist of a management presentation and access to a data room, after which definitive offers are expected.

We have to move quickly in order to have a chance of acquiring this property. Three activities should be initiated immediately:

1. The legal department should review and negotiate the nondisclosure agreement terms in order to receive the offering materials.

2. Business development should draft a briefing document for the corporation regarding the company: who they are, the market segment in which they operate and its attractiveness, how the acquisition would help us, and how an acquisition by one of our competitors would hurt us. They should work with finance to prepare an initial valuation for sizing. We have to get the corporation up to speed and excited about this market segment and the company fairly quickly because, not surprisingly, the broker has established an accelerated timetable for this deal.

3. The data room will be open in approximately three weeks. Business development, legal, and finance should assemble a due diligence team, making sure that the necessary internal experts and external advisors are lined up and ready to hit the ground running.

I hope your weekend was restful—we have a lot of work ahead of us.

If this scenario sounds familiar, it is because mergers and acquisitions (M&A) have become a way of corporate life. During the last five years, over 46,000 transactions were announced in the United States. This statistic, however, does not take into account the many prospective transactions that progress far past an initial evaluation and never come to fruition. If 46,000 transactions were completed and announced, it is probable that corporations spent significant time and resources working on several hundred thousand potential transactions over the same period.