Commercial Due Diligence for Buying and Selling Companies

Commercial Due Diligence for Buying and Selling Companies

taught by Roger Baden-Powell

Course description

Due diligence can never eliminate risk but, methodically undertaken, it will reduce the level of surprise post acquisition. This course explains the objectives and procedures of a thorough due diligence investigation relating to the acquisition of companies and businesses.

Practical advice is given on the fundamental principles, techniques and procedures of a due diligence exercise and on the different objectives in the due diligence process, covering commercial, financial and legal due diligence and also the more specialised areas of investigation.

The roles and obligations of the financial advisers, reporting accountants and solicitors involved in a due diligence investigation are separately examined with emphasis on examples of problems that might arise as a result of inadequacies in the extent of the due diligence process.

Prepare for Success

  • Overall Objective – assess the nature of the transaction
  • When Should Due Diligence Start and End? – a continuous process
  • When, Why, How and Where is Due Diligence Applied? – each case is uniquely different
  • Preserve Shareholder Value – most acquisitions destroy shareholder value
  • Assess Material and Probable Risk – residual risk will remain but surprise can be reduced
  • Interaction between Due Diligence and Warranties – establish a reasonable balance
  • The Core Due Diligence Team – financial advisers, reporting accountants and solicitors
  • Focus on important issues – material and probable risk

The Purpose of Commercial Due Diligence

  • What is Commercial Due Diligence? – kick the tyres, count the beans, look for skeletons
  • Evaluate the Opportunity – is it worth the effort?
  • Investigate Three Specific Risk Areas – sector, competition, management
  • Look Below the Radar – customers, suppliers, competitors, employees
  • What is the Industry Structure? – competitive activity, barriers to entry
  • Analyse Commercial Risks – operating cycle, routine and non-routine threats
  • Test the Forecast – supply chain analysis, industry life cycle, economic cycle
  • Sensitivity Analysis – what could go wrong and what might go right?

The Result Legal Due Diligence

  • Insist on Senior Legal Input – intelligent questions reveal unsatisfactory answers
  • Financial and Commercial Operations – the nature of the business, its assets and liabilities
  • Transitional Support – is it required post acquisition?
  • Litigation Analysis – assess the present position and look for clouds on the horizon
  • Compliance Review – does the target operate within the law?
  • Personnel and Employment – is it likely that anyone will cause problems?
  • General Housekeeping – no company is perfect: suggested improvements

The Objective of Financial Due Diligence

  • Plan the Work – financial due diligence is not an audit
  • Project the Maintainable Profits to Assess Value – growth rate, risk profile, multiples
  • Investigate Assets and Liabilities – are the assumptions of commercial due diligence true?
  • Check the Adequacy of Working Capital – has it been depleted prior to sale?
  • Investigate Capex and Depreciation – review the asset replenishment cycle
  • Examine Budget Procedures – test the track record
  • Assess the Internal Controls – how are risks identified, analysed and monitored?
  • Analyse Cash/Revenue Movements – reconcile profits to cash
  • Identify Indicators of Potential Fraud – management, accounts, industry
  • Structure the Content of the Due Diligence Report – match it to the client’s requirements

Further Investigations

  • Environmental Due Diligence – avoid inheriting unlimited liabilities
  • IPR and Technology Due Diligence – a frequent last minute deal breaker
Roger Baden-Powell
Presented by
Roger Baden-Powell
Director of Training

Barrister and Stockbroker

Roger Baden-Powell qualified as a barrister and joined Joseph Sebag & Co., London stockbrokers, as a property and insurance analyst. In 1978, he became a partner of the firm and was appointed head of equity research and a Member of the London Stock Exchange. Whilst with the firm, he was seconded for two years as the London Stock Exchange Representative to the Executive of the City Panel on Take-overs and Mergers.

Corporate Adviser and Investment Manager

From 1981-1987, he was a partner of Baden-Powell, Chilcott & Co., a City of London based corporate finance and investment management firm. Corporate finance activities included advice on acquisitions and mergers and general financial, commercial and legal advice. The firm also owned minority interests in an insurance broking company and an advertising agency.

Investment Banker

From 1988-95, he was with Bank Mees & Hope NV, a Dutch merchant bank (a subsidiary of ABN-Amro) and, in 1991, was appointed CEO of the bank’s UK corporate finance and investment management subsidiaries and executive chairman of the bank’s UK private client stockbrokers, Shaw & Co..

Corporate Adviser and Trainer

Since 1996, he has been a director of Baden-Powell Associates Limited (BPAL), corporate advisers. In 2002, he distilled his experience of corporate deals into 16 one-day courses which he has now presented over 700 times in and around Europe … sometimes as far away as Moscow, Riyadh and Johannesburg. Approximately 7,500 accountants, lawyers, corporate advisers, bankers and business owners  have attended his one-day courses over 98% of whom have said, in their written testimonials, that his practical and commercial emphasis on examples of real deals was a very effective learning format. In 2017, he videoed his most popular courses which are now available as the "Corporate Advisers’ MasterClass"(130 videos with 33 hours of training).