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Introduction
Deals advisory is a critical function of THE CFO HQ where we help our clients and businesses navigate complex transactions such as mergers, acquisitions, divestitures, and investment opportunities. The scope of deals advisory extends far beyond just the buying or selling process—it encompasses everything from due diligence to post-transaction integration and involves financial, operational, legal, and strategic insights that ensure the deal adds value. For businesses looking to buy, sell, or invest, partnering with a reputable firm like THE CFO HQ can make all the difference between a transaction that leads to success and one that ends in costly failure.
In this update, we shed more light on Due Diligence {DD} and why it is essential to the success of your transaction. Due diligence is the cornerstone of successful transactions, whether you're buying, selling, or preparing for an M&A. It helps businesses protect their investments, avoid costly mistakes, and realize synergies that create long-term value. From HP’s acquisition of Autonomy to Dell's acquisition of EMC, the importance of thorough due diligence cannot be overstated in our recent business history. To safeguard your next deal, start early, budget appropriately, and select the right advisors. For more information, visit out website: https://www.thecfohq.com
*Buy-side DD Team
Buy-Side - When Acquiring a Business
- How and When to Get Ready [Buy-side]
A lot of businesses experience growth through acquisitions, whether you are in Private equity or you are a CFO planning for a new acquisition, it is important to understand that before acquiring or buying a business, a thorough investigation into not just financials but also operational, legal, and cultural aspects is critical.
Financial due diligence allows you to assess the target's true financial health. Legal and operational due diligence can reveal hidden liabilities such as lawsuits or operational inefficiencies. For instance, when HP acquired Autonomy in 2011 for $11.7 billion, HP failed to conduct adequate due diligence into Autonomy’s accounting practices. This resulted in a $8.8 billion write-down and is considered one of the most significant M&A blunders in recent history.
Buy-side DD readiness is particularly crucial as it helps you the Buyer to ensure that you are fully prepared for a transaction ahead, minimizing delays and uncovering potential issues early. Readiness helps build credibility with buyers and investors, maximize deal value, and reduce the risk of unexpected liabilities or compliance hurdles.
- Buy-side Planning - What to Budget for
The costs for your Buy-side due diligence vary based on your deal complexity. For small to mid-cap deals, financial and operational due diligence might range from £25,000 to £500,000, while legal compliance checks could add to the costs. For larger deals the costs could be higher £1m+, legal compliance checks could also add to the overall costs of DD. In the failed Daimler-Chrysler merger, under-budgeting for cultural due diligence contributed to the $36 billion deal's collapse, with Daimler eventually selling Chrysler for just $7.4 billion in 2007.
*Lesson: comprehensive due diligence is always worth the investment.
- Buy-side Readiness - When to Start Getting Ready
We advise that when considering a potential acquisition that you initiate due diligence as soon as preliminary discussions begin. Typically, buy-side due diligence takes 30-90 days, but starting early ensures there is enough time to negotiate terms or withdraw from a deal if red flags emerge.
Caterpillar's acquisition of ERA Mining in 2012 could have benefitted from starting the due diligence process earlier, as an internal review post-acquisition found fraud that cost Caterpillar $580 million. Initiating due diligence early in preliminary discussions helps uncover critical information that can influence deal terms, identify risks, and build trust. It also ensures informed decision-making, streamlined negotiations, and avoidance of costly surprises later in the process, increasing your likelihood of success..
Choosing a vendor with a proven track record is essential. Look for firms with specific expertise in your industry. For example, we (THE CFO HQ) are known for our meticulous approach to buy-side due diligence, we hire and retain industry-specific advisors and legal experts to ensure every aspect of our deal advice is scrutinized, which directly contributes to your acquisition success. For more information on how we could support your transaction, visit our website: https://www.thecfohq.com
The primary value of buy-side due diligence is risk mitigation and ensuring that you're acquiring a business with no hidden surprises. By performing robust due diligence, you can uncover synergies, assess the competitive landscape, and validate financial projections.
The success of Disney’s acquisition of Pixar in 2006 is a prime example of thorough due diligence. Disney’s deep dive into Pixar's culture and operational processes ensured that the $7.4 billion transaction was seamless, leading to enhanced value for both companies.. For more information on how we could support your transaction, visit our website: https://www.thecfohq.com
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*Sell-side DD Team
Sell Side - When Exiting or Selling Your Business
- How and When to Get Ready [Sell-side]
When selling, your goal must be to present a clean, transparent, and valuable business to prospective buyers. Start by cleaning up your financials, ensuring contracts are up to date, and addressing any legal issues. The sale of Lehman Brothers' assets in 2008 highlights the need for thorough sell-side preparation. Lehman’s lack of financial transparency at the time led to a rapid decline in its valuation, contributing to its bankruptcy.
To prepare for your sell-side or Vendor due diligence, it is imperative for you to organize and scrutinize your financial records and statements, legal documents, and contracts etc, to ensure compliance with regulations, address operational inefficiencies, and identify potential risks. It is also essential to conduct a pre-sale audit that aims to streamline your key business processes, and prepare clear disclosures to present a transparent, well-organized target to potential buyers
- .Sell-side Planning - What to Budget for
Pre-sale or otherwise Vendor due diligence can be expensive but is necessary to maximize value. £30,000 to £250,000 should be allocated to audits, legal experts, and possibly valuation specialists for small to medium size deals, whilst £250k+ is our recommended provision for larger vendor due diligence readiness projects.
By comparison, Whatsapp's sale to Facebook in 2014 for $19 billion stands out as an example of a well-prepared sell-side process, where Facebook had no hesitation in offering such a large sum due to Whatsapp's value proposition, records and transparent growth metrics.
Other mid-cap and larger M&A transactions require substantial budgeting for multi-layered due diligence. Financial, legal, and operational checks can cost £100,000 to £500,000 or more.
Dell’s acquisition of EMC in 2016 for $67 billion is an example of a well-planned M&A due diligence effort that contributed to the deal's success. Dell’s meticulous IT due diligence was able to re-assure and ensure operational synergies would be achieved post-merger.
When budgeting for M&A/sell-side due diligence, consider factors such as the scope and complexity of your transaction, expert fees for financial, legal, and operational assessments, potential need for technology or data analytics, and contingencies for unforeseen issues that may arise during the due diligence process.
- Sell-side Readiness - When to Start Getting Ready
We recommend that you start the process at least 6 to 12 months before you intend to sell. This gives you time to address issues that could affect the valuation.
LinkedIn’s sale to Microsoft in 2016, a $26.2 billion deal, benefitted from early preparation, which made the transaction smooth and prevented post-transaction complications.
For more complex M&A, sell-side due diligence should start as soon as the deal is considered. M&A transactions generally take 60-120 days for due diligence. ExxonMobil's acquisition of XTO Energy in 2010 for $41 billion is a good example, it demonstrates how early integration planning, initiated during due diligence, resulted in a successful transition for both companies
We commend selecting sell-side advisors with expertise in your industry. We (THE CFO HQ) help sellers prepare by ensuring due diligence is conducted thoroughly before taking their businesses to market, for more information, please visit our website: https://www.thecfohq.com
A thorough sell-side due diligence process reduces the likelihood of price reductions or deal collapses. It increases the buyer’s confidence and helps to fast-track the negotiation process.
For example, in the $44 billion acquisition of Time Warner by AT&T, early due diligence allowed for smooth regulatory approval and alignment, ensuring the deal’s success. You see – Due Diligence is deemed to be the beginning of brilliance and the pre-curser to value maximization in all your transactions.
In the intricate world of M&A, buyouts, and investments, deals advisory is your compass for navigating complex transactions. By partnering with us at THE CFO HQ, you gain access to comprehensive expertise that minimizes risks and maximizes the value of your transaction. Whether you're buying, selling, or investing, we ensure that your interests are protected.
We hope this article has provided you with valuable insights into the importance of due diligence, your scope and budget considerations, and how to effectively prepare for it. Thank you.
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THE CFO HQ provides CFOs and Business Founders with the tools, expertise, knowledge, and support they need to transform and achieve financial and operational successes at different stages of their business lifecycle.
Our website: Https://www.thecfohq.com
Tel: +44 800 654 6550
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