Buy side assistance - due diligence

Financial due diligence 

Financial due diligence involves an investigative analysis of a business, assessing the key issues facing the business and the drivers behind maintainable profits and cash flows, identifying the key financial risks and potential deal breakers of the transaction.

Our approach aims to identify the value created by the transaction, including analysis of:

• Actual earnings (identification of one-off events and sustainable earnings)
• Financial projections
• Cash flow generators
• Capital expenditure
• Working capital
• Management information system and control environment
• Employment issues
• Commitments and contingent liabilities that might endanger financial performance or otherwise adversely affect the target's financial position after the transaction.

Our work may relate to an acquisition of the shares in a company or its assets (or a group of assets) as well as the organised part of the enterprise. We conduct our projects in close cooperation with our clients and the investor’s other advisers, which enables us to achieve complete understanding of investors’ expectations and provide high-quality deliverables.

Tax due diligence (Buy-side)

Our experience indicates that identified tax risks can have a significant impact on the market value of the target company and might constitute a crucial argument in price negotiation process. The aim of the tax due diligence is the analysis of the target’s tax treatment in respect of its consistency with Polish tax regulations, legislation of the administrative courts and the instructions issued by the Polish Ministry of Finance. Our services in respect of tax due diligence include, in particular, analysis of the target’s tax settlements and social security contributions in order to identify tax risks and analysis of decisions concerning historical tax controls undertaken by relevant authorities.

For leading investors, whether financial or strategic, it has become common practice to conduct commercial due diligence to increase confidence in financial projections. In a commercial due diligence engagement, we conduct an analysis of the potential target’s market environment and competitive position and their impact on the target’s business plan.

Our approach to commercial due diligence is adapted to individual client requirements. This analysis focuses on key issues crucial to the investor, relates, inter alia, to the review and assessment of assumptions made in budgets and forecasts of the target against market evidence and industry expectations in the sector. Furthermore, a commercial due diligence investigation enables the investor to both address potential market risks in the target’s valuation and recognise the target’s unrealised growth potential.

Typically, commercial due diligence can address the following issues:

• Market mapping, segmentation and sizing
• Demand drivers and key purchase criteria
• Customer portfolio development and customer referencing
• Market positioning, business performance and sustainability of strategy
• Industry dynamics and competitor behaviour
• Pricing and margins, including projection sensitivities
• Revenue and gross margin modelling.

While we work in close collaboration with our clients and management teams, we always give an independent and objective view of our findings. Core to our proposition is that we rapidly build the knowledge available on the business by independent research, as well as our extensive experience of sectors, leveraging both a national and a world-wide network of industry experts. Further differentiator is that we are very focused on the financial impact of our findings and can gain efficiency when working alongside our financial due diligence teams. Finally, our Warsaw-based  team has extensive commercial due diligence experience in Poland and throughout the wider CEE region.

Our operational due diligence assistance focuses on operating cost and capital expenditure and involve analyses of historical and current operating performance (processes) of the target company as well as identification of potential synergies that might be achieved as a result of the considered transaction. Our analysis supports the identification of operating bottlenecks, the assessment of the capability of current and planned operations to support the target’s projected volumes and the evaluation of potential capital expenditure requirements.

The typical analysis carried out under the operational due diligence services can include:

• Analysis of operating costs and cost reduction programmes included in the forecast
• Assessment of operational capacities
• Review of performance against industry standards of the target
• Identifying and assessing potential upsides and bottlenecks
• Modelling of operating costs and capex under different scenarios.

Corporate and private equity buyers must address integration issues quickly and early on the transaction in order to realise full value of the investment.

Our PMI advisory service relates to multidisciplinary assistance to help you generate increased value from the deal. We help to integrate new business while preserving “business as usual” performance. We would also benefit from the understanding of the business gained during due diligence process in order to best determine post merger approach.

Although this service is always carefully tailored to the needs of our clients, it typically focuses on:

• Understanding of revenue and cost synergy potential
• Preparation for ‘Day One’ of the effective take-over of the target
• Identification and realisation of ‘quick wins’
• Identification, prioritisation and tackling of the first 100 days post completion issues (including inter alia rationalisation of systems, synergy assessment and tracking, retention of key staff and building a management team).

Pre-deal evaluation

Pre-deal evaluation involves initial assessment of a target company to identify key risks and potential deal breakers, using mainly publicly available information. This analysis is relevant to any client, who is interested in acquiring or investing in another entity and would like to obtain initial information on the target prior to deciding on full-scope due diligence.

Our main assistance provided to potential investors under Pre-deal evaluation spo:

• Analysis of publicly available information relating to the target
• Assessment of market and industry attractiveness
• Consideration of the target's strengths and weaknesses against industry benchmarks
• Identification of key risks and potential deal breakers
• Identification of potential market and operational risks and opportunities associated with the target.
   

Contract and completion procedures assistance

Contract assistance aims to advise on the financial, accounting and tax aspects of the draft sale and purchase agreement related to the acquisition of the target company, including consideration of related risk areas and issues identified based on the previously completed due diligence analyses.
 

During provision of contract assistance services, we typically focus on the following aspects of the draft sale and purchase agreement:

• Structure of any price adjustment mechanism
• Warranty and indemnity claims from the accounting and tax perspectives
• Future plans for add-on acquisitions or divestitures
• Accounting principles for closing accounts
• Mechanics of closing accounts process
• Advice on an appropriate level of normal working capital
• Definition of primary financial aspects (including inter alia net debt, normal working capital, EBITDA)
• Advice on potential issues relating to earn out mechanism.
   

Our support to the investors in the transaction completion procedures includes inter alia:

• Advise in respect of accounting procedures during transaction closing
• Support in the preparation of the completion accounts
• Verification of the completion accounts (prepared by the target company, by the vendor or by the purchaser) with the objective of assisting in determining the appropriate purchase price adjustments based on the transaction sale and purchase agreement.