M&A WATCHING [WEEK 12/08 – 16/08]: WHAT IS DUE DILIGENCE?

M&A Watching (Week 12/08-16/08/2024): Approach to Due Diligence and the Role of Due Diligence in M&A Activities

In the first article in our series of shares about Mergers & Acquisitions (M&A) activities as well as corporate fundraising activities, let’s explore what Due Diligence is and what role it plays in M&A activities.

1. What is Due Diligence?

Due Diligence, also known as in-depth appraisal, is a very important link in the M&A process to help investors understand the target company or project before investing or injecting capital. Conducting in-depth appraisal helps investors (buyers) determine development potential and identify risks of the target company.

2. The role of Due Diligence in M&A activities

The process of executing an M&A (Mergers and Acquisitions) transaction usually takes a long time and involves many steps to be carried out. Typically, this process lasts from 6 months to several years, depending on the scale and type of the specific business.

Tasks to be performed when carrying out M&A activities include: 1. Identifying M&A goals and strategy >>> 2. Searching for and selecting partners >>> 3. In-depth due diligence (financial, legal, operational, and commercial) >>> 4. Negotiating and signing contracts >>> 5. Approval from regulatory authorities (if needed) >>> 6. Executing the transaction (transfer of assets, shares, and other rights) >>> 7. Post-M&A (Post-Merger Integration) (integration of accounting, human resources, culture, governance structure, operating processes, internal control systems, …)

Due Diligence is an extremely important step in M&A transactions. If the evaluation and survey are accurate, the business can make precise and effective investment decisions. Before deciding to invest capital, investors must carefully consider and assess the company’s activities and report data. Currently in Vietnam, there are small and medium-sized enterprises that do not have reasonable and clear financial and accounting activities; therefore, due diligence plays an important role in objectively evaluating the business. The time to complete this work usually takes about a month, depending on the scale.

3. Types of Due Diligence

• Financial Due Diligence
• Commercial Due Diligence
• Legal Due Diligence
• Tax Due Diligence
• Operational Due Diligence

4. Due Diligence Implementation Process

Typically, the Due Diligence implementation process includes 6 steps:

Step 1: Determine the scope and objectives of the due diligence

Step 2: Gather information related to the due diligence

Step 3: Analyze the information collected in step 2 to understand the target business

Step 4: Assess the risks related to the transaction and the target business

Step 5: Conduct in-depth on-site due diligence work

Step 6: Prepare an appraisal report, clearly stating the findings, impact assessments, and the recommendations of the appraiser to help investors have more information and a basis for making official decisions.

You can download and read the full document on this week’s shared content  Here!

If you have any questions or would like to learn more about M&A consulting services, capital mobilization, or Due Diligence, please contact us using the information Here!

Sincerely,