Bayer’s bought Monsanto, Linde has taken over Praxair and Hochtief swallowed Abertis. Those are just a few of the companies looking to grow, boost competitiveness and expand their business into new industries by buying or consolidating with other companies. For a long time now, mergers and acquisitions (M&A) have been a key way to ensure future growth and help companies to achieve long-term success, including on an international level. The deals often run into the billions, so an acquisition or sale needs to be thought through and planned carefully.

DUE DILIGENCE: A LOOK UNDER THE BONNET

This is where due diligence comes in – the heart of any M&A deal and the best way for a potential investor to conduct a thorough scrutiny and evaluation of a company. In the same way as a potential house buyer views the property, checks its condition and asks about the price, an investor uses due diligence to obtain a complete and detailed picture of a company’s whole situation. After all, investors don’t want to buy a pig in a poke – they want to minimise the risks inherent in an acquisition as far as possible. In addition, the examination and risk analysis will also influence the price the investor is prepared to pay for the company.

Investors check multiple areas of a business, especially those related to the buyer’s motives for the acquisition, but due diligence always includes the following areas at a minimum:

Financial due diligence, to analyse the firm’s financial situation
Tax due diligence, which looks at all tax-related matters
Legal due diligence, which checks all the company’s contracts and judicial situation
Commercial due diligence, providing information about a company’s market position
Operational due diligence, to obtain an overview of ongoing production, logistics, sales and administrative processes.

The technical, cultural, environmental and strategic areas may also be subject to due diligence. The areas to be analysed are agreed between the buyer and seller. The object of an acquisition or sale may not be the entire company. It could just be a single business unit or an asset such as an office building. In these cases, the investor would only examine the relevant areas.

DISCLOSURE OF ALL INFORMATION VS. PROTECTION OF TRADE SECRETS

Due diligence always carries a big risk for sellers because they need to disclose all their trade and business secrets – even if the potential buyer ends up deciding against the acquisition. That makes it even more important to take sufficient precautions to protect all information to be shared.

The first step here is for potential buyers to sign a non-disclosure agreement (NDA). If both parties have agreed that they are fundamentally interested in a transaction, they also sign a letter of intent.

The next step is that the seller makes available all the relevant documents to the investor and his or her advisers. The best way to do this is with a virtual data room, which the buyer’s team can access for a predefined period. The important thing with a data room, other than seamless document sharing, is traceable document protection and data security.

ABSOLUTELY SECURE INFORMATION SHARING

The Brainloop DealRoom guarantees both. Firstly, it’s ready to use within a few hours and is easy to populate with complete folder structures. Buyers and their advisers can access information anytime and from any location. Secondly, the deal manager always has full control with the data room’s integrated, granular rights management and the audit trail that logs all activities.

Additional data security is provided by standards like the ISO 27001 certification, end-to-end 256-bit encryption, two-factor authentication, and the fact that the data is shielded from access by datacentre staff and IT administrators. If several potential investors are involved, the data room solution also includes Chinese walls that ensure that they can’t see each other. And at the end of every project, the seller company can generate a confirmation of conformity with the archival and export of the entire dataroom.

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Written by Marion Haage

Mergers & Acquisitions: the way to success

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