Benchmark International

What is due diligence and why is it undertaken?

It is imperative that during an M&A transaction that thorough due diligence is conducted, not least because it helps to establish the true value of a transaction.

Due diligence is a term applied to the work acquirers undertake after signing HoTs (Heads of Terms) and falls into three categories: commercial due diligence, financial due diligence and legal due diligence. It is a review of the seller’s company and includes looking into areas such as potential risks and liabilities, the seller’s competition, middle management and employees, financial status, intellectual property, and assets.

It is not a task for the faint hearted – gathering all the necessary documents required by an acquirer and correcting any potential issues is time consuming, particularly when the seller is running a business and dealing with selling the company at the same time – and it is not going to get any easier, with a new EU regulation coming into force on the 25th May 2018.

What is the new regulation?

The new regulation (General Data Protection Regulation or GDPR) replaces the Data Protection Directive with the aim of protecting the personal data and privacy of EU citizens. It must be adhered to by all companies conducting business in the EU, regardless of the location in which they operate.

There is a heavy emphasis on the privacy of a company’s customers; therefore, companies will be scrutinised on how they collect, store, use and transfer personal data. The knock-on effect this then has is that during a transaction, an acquirer will carry out even more comprehensive checks on the target, examining the internal data protection systems and processes and undertaking checks on contracts with suppliers and subcontractors, which must comply with the new regulation.

This is in an acquirer’s best interest, as they inherit any existing data protection liabilities from the seller post-sale and the penalties for a breach are steep, attracting a maximum fine of either €20m, or 4% of global turnover, depending on whichever is the higher figure.

What does this mean if you are looking to sell your company?

As mentioned, due diligence is a time consuming process, which has been enhanced with the GDPR, but one that needs to be done as no sale can be achieved without it. At Benchmark International, clients are encouraged to gather the information required at an early stage, when it can be gathered at a steadier pace, which, later down the line, helps to increase negotiating options and potentially reduce timescales for a deal completion once the HoTs have been agreed.

An acquirer is likely to have a due diligence request list, and Benchmark International can help the seller prepare in advance by providing a list of required documents in anticipation. Benchmark International can also help by supporting the seller in the identification and correction of issues in advance of a transaction, saving time and reducing costs at the time of the deal.

ABOUT BENCHMARK INTERNATIONAL

Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners achieve their personal objectives and ensure the continued growth of their businesses.

We are ready when you are.

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Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.