By Brandon Fredericks, CPA | AGP Advisory, Leader
In performing financial due diligence, we get a chance to really peal back the layers of a company. That process can reveal additional areas within the business that should be considered prior to any acquisition closing. The fact of the matter is everything in life comes with a cost. Thus, even though the financial due diligence process may not directly evaluate these risks, it can help to identify additional risks to a potential deal. It is important to see the bigger picture of any financial due diligence report and how the summaries and findings tie into other areas of the business.
Below is a list of the most common areas that have the potential to cause heightened risk to an acquisition beyond the financial matters discussed in other areas of this series. It is important to understand who “owns” these areas in the due diligence process—best practice is to directly assign responsibility through the various teams assisting in the transaction. While scanning the list below, keep in mind of any financial impact that may be associated with one of these other areas. Communication is key as deals progress along:.
- Informational systems
- Intellectual property
- Cybersecurity and data privacy
- On-going litigation matters
- Corporate general matters
- Entity tax structure and tax planning
- Antitrust, regulatory, and/or compliance issues
- Insurance coverage
- Environmental issues
- Strategic fit and alignment
- Employee and management issues
- Related party matters
- Real estate and property matters
- Marketing arrangements
- Supply chain and operational matters
The list may seem daunting but having a sound framework and process in place is key. All these areas should have their own respective due diligence process. The key to reiterate here is the potential financial impact being analyzed and assessed. For that reason, open and transparent communication amongst the due diligence teams will increase the accuracy and completeness of all financial due diligence areas. As discussed in previous segments, findings or issues should be quantified and supportable. This will increase the “quality” of earnings and net working capital within any deal.