Due Diligence Service Overview
Due diligence is an investigation or audit of a potential investment, seeking to provide either the buying or selling side of a deal with objectivity, expertise, and a fresh perspective on the potential risks involved.
Due Diligence provides a full picture of the business being investigated, covering all aspects, including its strategy, finances, human resources, and legal obligations. The research done seeks to identify risks that can affect future cash flows, stability of profitability, cost structures, and other determinants of business viability.
The SavvY Approach
Each due diligence project is unique, with varying scope and depth of investigation required according to the capabilities of the client and the profile of the deal. In total, our approach probes the following elements of a deal’s target:
- Target Overview – organizational structure, market structure, business strategy, operational/brand fit, and ultimately, why the target is coming to the table
- Human Capital – commitments, agreements, and obligations to employees, as well as relationships and history with employees and key employee groups
- Financial Results – financial statements overview, cash flow analysis, cash restrictions, one-time events, disclosures, etc.
- Revenue – recurring revenue streams, purchase contracts, backlog, customer patterns, sales channels, pricing approach, etc.
- Cost Structure – expense trends, questionable expenses, loans to employees
- Intellectual Property – patents, trademarks, licensing income, and expenses
- Fixed Assets – asset valuation, utilization, maintenance, replacement rate, existence risks, etc.
- Liabilities – accounts payable, leases, debts, collateral, and unrecorded liabilities
- Equity – shareholder, classes of stock, options, unpaid dividends, and buyback obligations
- Taxes – tax payments, correct payments, and undisclosed tax liabilities
- Marketing & Sales – organization, productivity, coordination, and branding
- Logistics and Materials Management – supply chain, transportation costs, supplier contracts, inventory, etc.
- IT – systems in place, licenses, outsourcing, customization, legacy systems, and backup and recovery plans
- Legal – current/prior lawsuits, legal expenses, contracts, charts/bylaws, and shareholder/board meetings, etc.
Due Diligence Service Deliverables
The final deliverable will, of course, depend on the project scope, but in the purest form, we seek to deliver a comprehensive report with elements relevant to all stakeholders in the client organization, as well as a clear and concise narrative for executives and decision-makers. In general, we see the key deliverables as:
- Executive Summary – Provides an overview of the project that should allow executives and key decision makers to evaluate the deal in less than 30 minutes
- Key Findings, Observations & Risks – Covers all information that could make or break the deal, and addresses key risks in the Share Purchase Agreement
- Macroeconomic Overview – Assesses the economic conditions and trends that will impact the appeal of the deal in question
- Sector Analysis & Trends – Assesses the competitive and regulatory developments and trends in the industry related to the deal
- Profit & Loss Analysis – Identifies revenue streams and potential profit pools of the deal target or post-consolidation organization
- Balance Sheet Analysis – Assesses risks stemming from Debt, PP&E, Net Working Capital, etc.
- Project KPI & Feasibility Conclusions – Provides an independent evaluation of deal feasibility, and key conditions that must be met to justify the deal
- Limiting Conditions – Delineates key project assumptions