In addition to the company’s business plan and financial statements other areas that need to be carefully checked include competition, marketing channels, technical drawings, machinery or processes described, pricing and shipping practices.  Many industries carry unique issues and require further steps including finding an expert with experience in that same market space who will be able to comment on the accuracy of the statements made.

Due diligence goes hand in hand with transaction services and can be approached from either side of the deal:

Due diligence services for sellers:

• Assessment of risks and opportunities – helping the seller in evaluating and understanding the sale of the business.
• Informational reports – helping the seller prepare risk and assessment documents for prospective buyers of the seller’s business.
• Assistance in preparation of sale – carving out the business to be sold, preparing financial reporting, serving as a liaison with bidders and transactional reports.
• Assistance on accounting, financial and tax implications of the business sale.

Due diligence services for buyers:

• Assistance with the assessment of business from available public information on industry and specific business (i.e., SEC reports and research of industry and specific business).
• Assistance in preparing an integration business evaluation, which can provide risk analysis of financial, tax, compensation and benefits, and information systems areas.
• Identification of business and industry outlook and trends.
• Assistance in facilitating the buyer’s understanding of accounting, tax, and financial reporting of various transaction negotiations and formulations.

The Forensic Accounting Services Team at Tauber & Balser, P.C. has extensive experience in delivering due diligence services to its clients.  The following offers a sample of some of those matters:

• Assisted company that manufactures "redweld binders" with an acquisition.  Performed due diligence procedures on inventory and accounts receivable resulting in a savings to the acquirer of over $200,000.  Additionally, reviewed purchase agreement and assisted attorneys with the negotiation.
• Investigated a start-up photographic imaging company, determining its actual assets and identifying its liabilities.  Since this was a young company its accounting practices were not sophisticated and the due diligence team discovered a number of unreported liabilities.  The effects of these liabilities were calculated against the initial purchase price.  The client’s operations spanned internationally.  As a result, the due diligence also involved a multi-disciplinary team of specialists.  Discovery of unreported liabilities resulted in a price adjustment in favor of the purchaser.  After the due diligence, the purchaser had a better understanding of the actual processes that were being acquired.  The due diligence team was also able to help the purchaser plan its tax and accounting procedures for the future by making recommendations that would improve the existing systems and tax planning strategies.
• Assisted seller in determination of a price and negotiations with buyer resulting in the tripling of the original purchase offer.
• Identified business risk in the acquisition of a small conglomerate.  Target had five operating divisions operating in four distinct industries.  Resulted in restructuring of financing which increased available financing by twenty percent.
• Preformed financial due diligence for international manufacturing company acquiring multiple distributors of its products.  Identified financial reporting issues resulted in reductions of acquisition costs.
• Assisted a purchaser of a chain of restaurants in verifying cash flow and financial data and advised the purchaser on transition issues including purchase price allocation and opening balance sheet preparation, setting up a list of accounts, and evaluating in-house versus outsourcing of certain accounting functions.  The due diligence team also acted as a facilitator in bringing in banks, insurance providers, and other potential business partners that the purchaser considered for the business.

Due diligence is not an insurance policy that will guarantee the successful integration and operation of an acquired company, but the chances of a good fit are much higher if the proper procedures are followed.  The consequences of not doing proper due diligence can be severe.

For further information contact:

Paul Dopp                   404-814-4988
Karen Fortune             404-814-4968
Richard Millman          404-814-4905
Howard Zandman       404-814-4915