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Due Diligence
An M&A Value Creation Approach
William J. Gole (Author), Paul J. Hilger (Author)
9780470375907, Wiley
Hardback, published 30 July 2009
304 pages, Tables: 17 B&W, 0 Color; Exhibits: 38 B&W, 0 Color
23.6 x 16 x 2.8 cm, 0.499 kg
"The authors of this book offer what they call a holistic approach to the due diligence aspects of corporate mergers and acquisitions. Although the authors briefly point to legal considerations in the M&A process, this is not a legal title. It was written by CPAs to provide practical guidance to due diligence activities. The authors accomplish this goal therefore the book would be more approporiate for an undergraduate or graduate business library than an academic law library." (Legal Information Alert, Vol 29, No 3)
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.
Preface xiii Step-by-Step Guidance xiii Organization xiv Planning xv Investigation xvi Execution xvii About the Authors xix Part One Planning 1 Chapter 1 Introduction 3 Overview 3 Mergers and Acquisitions: A Way of Corporate Life 3 Mixed Results 6 Acquisition Risk and Due Diligence 7 Preventable Causes of Failure 10 Myopic Approach to Due Diligence 11 Reacting to Deals 11 Compartmentalized Behavior 13 Inactionable Findings 13 Exclusive Focus on Risk Mitigation 14 Key Success Factors 14 Holistic View of Due Diligence 14 Growth Strategy 15 Integrated Management 15 Purposeful Action 16 Value Orientation 16 Due Diligence and Value Creation 16 Plan to Create Value 16 Strategic Purpose 17 Value Drivers 20 Key Risks 23 Purposeful Behavior 24 Key Points 25 Chapter 2 Planning for Value Creation: Growth Strategy 27 Introduction 27 Central Role of Strategic Planning 27 Chapter Focus 28 The Strategic Planning Process 29 Managing the Process 30 Characteristics of an Effective Planning Process 31 Process Overview 32 Strategic Assessment 32 Market Targeting Process 33 Investment Objectives 34 Market Expansion 35 Vertical Integration 37 Infrastructure Improvement 38 Investment Alternatives 38 Characteristics of Investment Types 39 Backup Planning 45 Plan Outputs 46 Conclusion 51 Key Points 51 Chapter 3 Implementing the Growth Strategy 53 From Identification to Pursuit 53 Choosing an Acquisition Strategy 53 Winnowing Process 54 Identification 58 Marketplace for Acquisitions 58 Identifying Prospects 59 Qualification 64 Strategic Fit 64 Availability 66 Engagement 67 Proactive Engagement 68 Role of Management versus Intermediaries 70 Confidentiality of Information: Nondisclosure Agreement (NDA) 70 Reactive Engagement 71 Assessment 73 Notification/Approval Document 73 Plan to Create Value 76 Pursuit 78 Transaction Framework: Sellers’ and Acquirers’ Different Perspectives 79 Taking Action: Assembling the Core Acquisition Team 81 Key Points 83 Part Two Investigation 85 Chapter 4 Preparing for Due Diligence 87 Introduction 87 Due Diligence Reviews 88 Chapter Focus 89 Environmental Factors 90 External Constraints of the Sale Process 90 Internal Limitations of the Acquirer 92 Nature of the Target Company 92 Impact of Environmental Factors on the Review 93 Creation of the Due Diligence Team 93 Introduction 93 Composition of the Due Diligence Team 94 A Caveat 97 Other Considerations 97 Initial Preparation Measures 98 Development of the Due Diligence Program 99 Program Development Process 99 Key Aspects of the Due Diligence Program 100 Objectives, Procedures and Findings, and Recommendations Illustrated 103 A Due Diligence Mind-Set 105 Planning Due Diligence 106 Finalize the Program 106 Mechanisms for Team Coordination 107 Resolve Issues of Overlap 107 Maintain an Aggressive Posture 107 Communicate Logistical Information 108 Communicate Responsibility and Timing of Report Submissions 108 Key Points 108 Appendix 4A: Due Diligence Checklist 109 I. Review Company Background and Organization and Proposed Transaction 109 II. Financial 112 III. Technology 114 IV. Products 115 V. Marketing and Sales 116 VI. Legal 116 VII. Insurance 119 VIII. Human Resources 119 Chapter 5 Conducting the Due Diligence Review 125 Introduction 125 Overview of Transaction Types 125 Auctions 126 Auctions: The Buyer’s Perspective 127 Preemptive Bids 128 Purchase Premium Preemption 129 Price Preemption: The Buyer’s Perspective 129 Relationship-Based Preemption 130 Relationship-Based Preemption: The Buyer’s Perspective 130 Summary of Transaction Characteristics 131 Components of the Due Diligence Review 131 Management Presentations 132 Management Team Interviews 134 Document Review 135 Tour of the Facilities 136 Technology Trade-Offs 137 Due Diligence Reviews: An Objectives-Driven Approach 138 Overview 138 Due Diligence Objectives 139 Integration 140 Assessment by Function 141 Finance and Accounting 142 Human Resources 145 Sales and Marketing 148 Research and Development 150 Information Technology Review 151 Operations/Production Review 152 Legal and Insurance Review 153 Cross-Functional Coordination and Analysis 154 Conclusion 159 Key Points 159 Appendix 5A: Illustrative Final Process Letter Outline 160 Invitation 160 Description of Transaction Process 160 Guidelines for Final Offers 161 Appendix 5B: Illustrative Data Room Information Listing 161 Chapter 6 Reporting on Due Diligence: Deliverables and Decisions 165 Introduction 165 Outcomes of the Due Diligence Review 165 The Importance of Backup Planning 166 Elimination in the Auction Process 167 Outputs/Reports 168 The No-Go Decision 170 No-Go Discoveries 171 Strategic Issues 171 Valuation Issues 172 Risk Issues 173 Outputs/Reports 175 Renegotiations of Major Terms 175 Outputs/Reports 178 Decision to Proceed 179 Outputs/Reports 179 Comprehensive Due Diligence Report 180 Summary Due Diligence Report 180 Corporate Approval Document 182 Integration Plan 186 Contingency Plan 188 Key Points 188 Part Three Execution 191 Chapter 7 Optimizing Value: Translating Due Diligence Findings into Action 193 Acting on Due Diligence Findings 193 Preacquisition vs. Postacquisition Issues 193 Revisiting the Valuation and Purchase Price 195 Reviewing the Acquisition Transaction Structure 199 Contingent Purchase Price 199 Acquiring Assets vs. Stock 200 Sharing Risk: Contractual Terms and Conditions 202 Marking Up the Draft Purchase Agreement 202 Contract Drafting and Revision 202 Key Sections of the Purchase Agreement 203 Purchase and Sale 203 Closing 205 Representations and Warranties of the Seller 206 Representations and Warranties of the Buyer 208 Covenants 208 Employment Matters 209 Conditions to Close 210 Termination 211 Indemnification 211 Tax Matters 212 General Provisions 212 Disclosure Schedules 213 Transition Services Agreement 213 Managing Contract Negotiations 215 Effective and Efficient Negotiations 215 Empowered Leadership 215 Support of Legal Counsel 216 Support by Experts 217 Review and Feedback 218 Commitment to Getting the Deal Done 220 Closing 220 Shepherding the Transaction toward Closing 220 Regulatory Approval 221 Hart-Scott-Rodino (HSR) Act 221 Buyer Financing 224 Third-Party Consents 224 Closing the Transaction 224 Key Points 225 Chapter 8 Integration: Extracting Value and Mitigating Risk 227 Dual Focus of the Integration Effort 227 Extracting Value 228 Mitigating Risk 229 Integration Team 231 Early Formation 231 Leadership 232 Structure and Composition 233 Integration Plan 234 Plan Components 234 First 90 Days vs. Longer Term 238 Management of the Integration Process 239 Communication 239 Reporting and Decision Making 242 Contingency Plan 245 Broader View of Risks 245 Plan Components 245 Human Factors 247 Culture 247 Knowledge Transfer 249 Recommendations for Postacquisition Management 250 Key Points 251 Appendix What is the Premerger Notification Program: An Overview 253 Index 275
Subject Areas: Finance & accounting [KF]
