Before You Sell or Buy
Due Diligence
Due Diligence
Before selling or acquiring a company, everyone seeks a high degree of certainty about the target’s true value. The most effective approach is to engage experts to determine that value – professionals who, during due diligence, review the broadest possible range of data from legal, financial, IT and even environmental perspectives. Financial due diligence is important not only to prevent a buyer from overpaying or a seller from underselling; it also helps achieve governance and risk-management objectives. It clarifies the company’s exact financial position, uncovers hidden liabilities and potential risks, and provides forward-looking insights into future cash flows and funding needs.
Due Diligence – Why It Benefits the Seller
An unprepared management team and delayed data provision cast the company in a poor light and raise the buyer’s perceived risk. Experience shows that a business already reviewed through due diligence sells faster than one that has not – materially increasing the likelihood that the transaction will close. Due diligence advisors can guide the seller on how to address identified issues or highlight mitigating factors that offset them. This reduces the risk of buyers trying to reopen negotiations and jeopardising the agreed price and deal structure.
Due Diligence – Why It Benefits the Buyer
Because of significant information asymmetry, the buyer naturally has less insight into the target than the seller – and, in some cases, the seller may be incentivised to present data selectively. It is therefore essential for the buyer to rely on expert knowledge and experience to understand the target’s financial and legal position and operating model. Only with this understanding can the buyer establish a sound negotiating position.
What Do Experts Examine?
Financial due diligence primarily reviews existing information at the target – accounting records and financial statements – often across multiple years, to build a complete picture of the company’s history, capital structure and assets. Equally important is the review of management-approved business plans, testing their foundations, feasibility and reasonableness.
Tax relationships are at least as important. Here, it is critical that the reviewer understand the target’s business model and operations; without this, tax obligations the target itself has not recognised may remain hidden – an outcome every buyer wishes to avoid. Incorrect transfer pricing is another common risk factor, as it can lead to material corporate income tax adjustments.
A further key element is the review of contractual arrangements. These often reveal prospective off-balance-sheet commitments – whether arising from customer, supplier or employment agreements.
What to Watch During the Due Diligence Process
It is telling whether the shortlisted target is willing to cooperate in the review. Most important, however, is that the engaged experts conduct work that is thorough, professional and comprehensive.
At Central Audit, client satisfaction is our highest priority. We design our services to deliver the greatest possible added value for our clients.
Why Central Audit?
Our broad audit experience gives us the professional foundation and sector insight to answer the tax and accounting questions that arise throughout a transaction. You need an advisor with the right accounting expertise and hands-on experience in your industry – so you don’t have to spend valuable time bringing us up to speed on your business objectives and sector specifics.
At Central Audit, client satisfaction is our foremost priority. We design our services to deliver the greatest possible added value for each client.
Business focus
Audit & Assurance
Accounting Advisory
Financial Due Diligence
Company Valuation
Tax Advisory
Transfer Pricing
documentation
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Automotive Industry
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