At KPMG, due diligence can form part of a four stage process designed to minimise transaction risks and maximise value:
- Pre deal evaluation to confirm if the target meets your acquisition criteria.
- Performing due diligence to analyse the target business in detail.
- Efficient deal structuring cognizant of tax risks and the accounting framework.
- Executing the deal ensuring issues identified during due diligence are factored into contracts appropriately.
Companies need a sound mergers and acquisitions strategy to perform well in major transactions and due diligence is a cornerstone of successful deal management.
To ensure that a transaction provides value to you as the purchaser, it is essential to identify risks and opportunities, including missing liabilities or potential synergies at the earliest possible stage.
Pre-deal evaluation: "Go / No Go" decision
We can help you decide which transactions are worth pursuing. Once a potential target has been identified, our dedicated team of experienced professionals can:
- identify the potential impact of the acquisition or merger in the prevailing competitive environment
- help you decide if identified synergies can be delivered in reality.
The risks increase when the target is a quoted company, as any offer is binding and the purchaser may have limited, if any, private information. In these situations, we recommend that purchasers go to extra lengths to analyse any data available on the target.
Due diligence: a rigorous analysis
Our due diligence approach delivers a rigorous analysis of the target’s balance sheet, trading performance, assumptions and risks. This will include a detailed view of the target’s cash flows, which will assist in pricing the acquisition and structuring your working capital requirements.
The due diligence process culminates in our providing you with a risk focussed report that:
- covers the issues that you want addressed
- highlights issues to be reflected in the sale and purchase agreement
- identifies factors that may either affect the purchase price or could lead to aborting the deal
- if relevant, caters to overseas acquirers’ needs. This includes considering NZ specific matters such as ACC levies, Kiwisaver, employee benefits, customer and supplier dependence (given the small size of the New Zealand economy) and guidance regarding the Overseas Investment Office and Commerce Commission requirements.
With a third party managing the due diligence process, Management is then freed up to focus on other aspects of the process (particularly where a lead adviser has not been engaged), such as negotiating with the vendor regarding price, obtaining bank financing for the acquisition and preparing documentation for shareholders regarding the transaction.
Structuring: minimise risk and maximise return
We can assist you to structure the deal efficiently in order to minimise the tax risk and maximise financial return.
Accounting, tax and legal issues have a direct bearing on the value of the transaction for both the purchaser and the vendor. These issues impact the structure of the winning bid and sometimes even the viability of the deal itself.
We recommend that tax issues be on the agenda at the first phase of the negotiation. The ability to create substantial tax savings often depends on early co-operation between the vendor and purchaser.
KPMG can assist local and international companies seeking to acquire or divest in New Zealand to navigate our tax and accounting and regulatory environment. We tailor the transaction structure to reflect geographic factors for each acquisition.
Executing the deal
Issues identified throughout the due diligence process should be factored into the sale and purchase agreement to protect the acquirer against price movements and contingencies.
KPMG can review the contract prior to settlement to ensure that it makes sense from an accounting perspective. This saves significant management time and cost post-completion.
We can also advise you on other issues such as completion wash up mechanisms (to ensure that you get the asset base that you paid for) and earn-out structures to protect against forecast growth not eventuating as anticipated.
In post-completion we can also assist the purchaser to settle the net-asset position.
We carry out a completion audit to verify the existence and quality of the assets and liabilities acquired. This is undertaken to a much lower materiality than a statutory audit and can result in significant cost savings through the price adjustment mechanism enshrined in the sale and purchase agreement.
Contact KPMG's Due Diligence specialists
If you would like to find out more, please contact the Due Diligence team.