Sell-Side M&A/Vendor Due Diligence
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Kroll provides sell-side and lender transaction services to a full spectrum of family and private equity-owned businesses as well as multinational clients with growing international businesses.
- Historical Financial Analysis – Quality of Earnings and Quality of Working Capital analyses/Cash flow
- Analysis of Operations – We analyze a Company’s operations to understand if there is an opportunity to present operational process improvements and potential future benefits from our analysis to enhance value of true deal
- Projections – Identification and validation of key projection assumptions, sensitivity analysis and risk profile, quality of backlog analysis, and projected working capital peg
Key Benefits of Sell-Side Due Diligence
- Reduce time to close and enhance value
- Validate Management’s adjustments to reported EBITDA
- Identify potential Quality of Earnings adjustments, including pro forma, operational process improvement and run-rate adjustments
- Provide “script” from which all members of Management can take direction
- Reduce Management’s discretion and time devoted to transaction
- Assess Net Debt and Debt-like items and summarize significant commitments and contingencies
- Assess Quality of Net Assets and assist with the working capital definition and computation
- Identify potential tax exposures, alternative structuring scenarios, and purchase agreement improvements that maximize value to the sellers
- Provide IT, compensation and benefits due diligence to enhance the deal value
- Summarize accounting methodologies, policies and controls, including departures from GAAP or IFRS
- If transaction involves a carve-out, assist in bridging and reconciling historical financial data with deal-based financials
Frequently Asked Questions
What are the stages of an M&A due diligence process, and how much time does it usually take?
The M&A due diligence stage will depend on many varying factors and this can take anywhere from 30-90 days. The diagram below is indicative of the phases Kroll follows in a typical due diligence process:
The typical process is determined by the Seller and Investment Bank, but typically takes 3-4 weeks until initial deliverable. After which, the team is available to assist the Company and Investment Bank throughout the sales process.
What is a typical M&A due diligence checklist?
An M&A due diligence checklist is a certain number of details or documents that prospective buyers’ review. This helps the buyer examine all relevant materials of the target company before finalizing on the decision to buy. A detailed checklist contains several hundred items assigned to specific people on the due diligence team but a range of topics that can be covered is given below:
- Building a team
- An accurate business valuation
- Financial and tax documents
- Legal/liability issues
- Intellectual property
- Customer base
- Organizational charts
- Human resources
- Information Technology including a descriptions of all financial and operational systems (including payroll)
What is the difference between buy-side and sell-side due diligence?
Due diligence is equally important to both buyers and sellers and they come with specific benefits and areas of concern.
Buy-Side due diligence
When considering a potential acquisition, the goal is two-fold: it is important to find a company that fits in well with the overall company objective and one’s needs at the right price. This is where a rigorous due diligence process comes into play.
Objective due diligence provides a factual assessment of important areas that one must take into consideration before moving forward with the transaction. First, it will help validate a company’s finances. Next, it gives an insider’s look at the strategic and operational characteristics of the company that may make the deal more attractive or put it out of the running.
In-Depth Financial Analysis
Numbers play heavily in any M&A deal. Buy-side due diligence will help the buyer assess things such as the quality of earnings and cash flow, assets and liabilities, and working capital.
Post the purchase, the numbers acquired through the due diligence process can help the buyer better understand what factors will be important to ensure growth and success in the future. With these numbers in hand, the buyer will be able to make better informed decisions as they move forward.
Strategic and Operational Considerations
On its face, a company may seem like a natural addition to the organization’s portfolio but due diligence will help ensure that an acquisition is truly a good fit. It also helps reveal how operational costs and decisions are affecting the bottom line and reveals potential weaknesses in the current personnel structure or company systems. Having a complete understanding of the financial as well as strategic and operational aspects of the target will help ensure a successful transaction and a valuable investment.
Sell-Side due diligence
As a seller, the goal is also two-fold: secure a successful transaction and close it at the highest price possible. Taking time to perform due diligence beforehand will help give you a realistic valuation for your company before you begin the search for a buyer. It will also provide accurate information for you to present to potential buyers. Finally, the process enables the Management team to be proactive with respect to the presentation of valuation issues.
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Comprehensive Due Diligence Solution
Our Comprehensive Due Diligence solution helps clients minimize risks and make the most informed business decisions. We support in the areas of tax, compliance and regulatory, ESG, operations/strategy, M&A, financial and accounting, investigations, disputes and cyber/IT risk.
Financial Due Diligence
Kroll's Financial Due Diligence team provides Quality of Earnings (QoE) and key financial analyses for buyers, sellers and banks in M&A transactions.
Strategy and Commercial Diligence
Strategic perspectives on the target’s market and competitive environment, as well as deeper insights and data on value creation opportunities.