Due Diligence in Mergers and Acquisitions

This Due Diligence in Mergers and Acquisitions course is divided into three main sections:

• Section 1 - Process: Due diligence management and how due diligence fits into, and interacts with, the process of putting an M&A deal together.
• Section 2 - Investigation and Discovery: a tour d’horizon of 20 or so potential due diligence areas. In each case, the likely areas of enquiry are covered, together with an illustration of potential findings.
• Section 3 - Solutions: Making clear how due diligence findings can go to the final terms of a deal by way of either price adjustments or legal remedies, or, in extremis, call for a ‘go or no go’ decision.

All areas of this M&A due diligence training are supported by case studies from the trainer’s own experience.

Section 1 - Due Diligence in the M&A Process

• Part of the jigsaw: how due diligence fits into an M&A transaction
• What do we mean by due diligence?
• What do due diligence practitioners do?
• How due diligence should inform a transaction
• When deals go wrong, is it the fault of due diligence? Introducing the ‘ten bad deals’ exercise (for discussion on day 2)
• Issues in due diligence management – from the advisers and the client’s viewpoints
• The vital importance of getting the brief right, at the outset …
• … and of the right balance between certainty and sensitivity
• Can reports contain errors, and why?

Due Diligence Management: A Framework For Using Due Diligence

• This M&A due diligence training course provides an introduction to valuation
• How due diligence findings can go to price:
  • Supporting the basis of enterprise valuation
  • Feeding into every step in the equity bridge
• Legal framework overview:
  • Why is diligence influenced by transaction structure?
  • How do due diligence findings inform the legal agreements?
• Understand the language used in the reports
• When due diligence can lead to a go/no-go decision

Due Diligence in the M&A Transaction Process

• Due diligence in M&A training looks at the principles of the M&A process to give context to how diligence may fit in:
  • Phasing: the rationale for how data is released
  • Interaction with other areas of information provision, such as teaser, information memorandum, tours/ site visits, and management presentations
• Review three main models for the delivery of due diligence:
  • The traditional process, with all buyers undertaking independent due diligence
  • Understand the potential risks of leaving diligence until late on
• A process underpinned by vendor due diligence prepared ahead of the wider marketing:
  • The pros and cons of VDD
• Vendor assistance services:
  • Support the target’s financial team/ Financial presentation in a form suitable to facilitate the buyer’s due diligence
• Case studies showing the strengths and weaknesses of each approach
• Tradecraft:
  • How well-planned due diligence supports a well-run transaction
  • Costs and who pays

Section 2 - Investigation and Discovery: The Key Areas for Due Diligence Investigation

• Introduction:
  • How does Warren Buffett approach due diligence? Lessons we can learn
  • Principles to guide your process
  • Seven Deadly Sins - traps to avoid
• The three main areas of due diligence used in most transactions are:
  • Commercial - supported by two case studies
  • Legal - supported by example legal findings
  • Tax
• Financial due diligence - introduction:
  • Why can’t we rely on the audit? Explanation of differences
  • Typical scope and areas of focus
  • Getting the output right: how to address sensitivities and uncertainty
  • Traps to avoid: examples of inaccuracies which the market managed to overlook

Financial Due Diligence - Detail

• FDD interaction with valuation:
  • At the enterprise value level
  • The whole equity bridge
  • Introducing FDD case study: the bridge before and after final DD
• What constitutes the quality of earnings?
• When is EBITDA, not EBITDA? Three ways of looking beyond the reported figure, and how FDD can help
• Case studies – how to calculate ‘reference’ EBITDA
• Profit-flattering: tricks to look out for
• Going beyond profit to cash flow: cash conversion, plus tricks to flatter cash flow
• FDD and the balance sheet: where to start
• How FDD reformats the reported balance sheet into a reference document
• The intrinsic difficulty of dealing with undefined (though broadly understood) terms
• Focus on fixed asset quality and Capex:
  • Example - what if the promised capex has not been undertaken
• FDD and the key price adjustments:
  • Debt - what exactly constitutes debt?
  • Cash - when may cash not be cash?
  • Working capital - understand the significance of this potentially complicated and tricky area
  • Worked examples/exercises of how to calculate each
  • Summary: buyer vs seller, and why this can become adversarial
• Diligence aimed at post-deal planning
• Operational analysis, e.g. benchmarking and scope for improvement
• Synergies analysis, costs and benefits
• Integration planning
• Specialist areas of diligence, and when they may be required
• Three common areas, often left until ‘too’ late:
  • Human resources, is a sadly undervalued area
  • Information Technology – on several levels
  • Property, is a feature of almost every transaction
• This M&A due diligence course explores two new areas which have recently grown in significance
  • ESG: diligence on the target’s environmental, social and governance policies
  • Cybersecurity: diligence that assesses resilience against cyberattacks and the potential downside
• Further specialist areas also addressed in this M&A due diligence training:
  • Plant and equipment
  • Stock
  • Resources/reserves
  • Patents, technology and IP
  • Contracts
  • Environmental
  • Insurance
  • Regulatory compliance
  • Pensions
  • Brand strength
  • Customer referencing
  • Lastly, reputational due diligence- the potential value of truly understanding who you are dealing with
• Exercise: Ten bad deals – to what extent was bad due diligence part of the problem?

Section 3 - Solutions: Dealing With Due Diligence Findings

• Due diligence and headline terms: revisiting key assumptions
• Time for the adviser to step up
• What is now needed from diligence providers
• Helping the client assess the deal:
• Achieving strategic intent
  • Value creation
  • Integration and fit
  • Value at every level
• If the parties are apart: Bridging a gap in value
• Due diligence and price
• Drawing on all findings (beyond cash/debt and working capital), which could go to value
• Making sure the legal agreement correctly captures the agreed-upon financial terms
• Two main methods:
  • Completion accounts
  • Locked box
  • Calculating the profit ‘ticker’
• Guidance on when each method is applicable
• Due diligence and the legal agreement
• Introducing the legal framework
• Highlighting the areas that matter
• Legal solutions to diligence findings:
  • Retentions, holdbacks and escrows
  • Indemnities arising from diligence findings
• The SPA and the disclosure letter
• How does this interact with due diligence?
• The importance of disclosure – and of focusing on any new information
• Warranties in the SPA: can they be relied upon?
  • Limitations
  • Making claims
• Discussion: Warranties or due diligence?
• The utility of warranty insurance

Conclusion

• Due diligence management: it should be integral to the transaction process
• The A-to-Z of due diligence
• M&A due diligence course key takeaways
• Learning outcomes
• Useful reference material
• The value of strong control over your diligence process
• Ultimate responsibility for decisions may be with the client, but diligence providers and advisers have to help!

Redcliffe Training's M&A due diligence course specialist has worked on corporate finance and capital markets transactions for over thirty years, holding positions on the client side as well as leading advisory teams.

At the Department of Energy, he was a civil servant involved in the privatisation of British Gas, a global IPO involving a large advisory team. He also spent two years (1990-92) in the Hungarian Government privatisation agency, working with many advisory firms, as the changing political environment triggered massive ownership change. He has worked in major investment banks (Swiss Bank Corporation International, UBS, and Lazard) and co-founded a successful M&A advisory boutique firm. In 2021, he retired from KPMG, where he spent 13 years in the firm’s global M&A business, based in Scotland.

His background combines a broad range of M&A and equity transactions in North and Central America, Asia Pacific, the major European countries, and, more recently, in Africa. What makes his M&A due diligence training courses so valuable is case studies from transactions he has run, bringing practical examples to set alongside the theory.

Due diligence in mergers and acquisitions training is for professionals who use due diligence and diligence providers who want to understand how their due diligence reports feed into the deal. The focus is on how to commission and use due diligence, from a transaction leader’s perspective, supplemented by a run-through of some 20 due diligence areas, illustrating typical findings in each case.

Participants will:

• Gain an introduction to the concept of due diligence
• Understand its significance and its place in the M&A process
• Consider the pros and cons of alternative methods of service delivery, such as vendor assist and vendor due diligence
• Develop an appreciation of how due diligence can support and challenge transaction pricing
• Study how due diligence findings interact with key legal terms - the SPA, disclosure, warranties and indemnities
• Explore the full range of due diligence areas, going beyond the standard financial/ tax remit and into commercial, strategic and other specialist service areas
• Become aware of typical findings from each due diligence stream and how these ultimately influence the terms of the deal
• Understand how forward-looking due diligence can contribute to post-deal success
• This M&A due diligence course will focus on outcomes, case studies and specific learning experiences aimed at showing where diligence was at fault – and what other factors can cause deals to fail

This due diligence in mergers and acquisitions course is a ‘must know’ for:

• M&A professionals at all levels, but especially those running transactions day-to-day and involved in due diligence management
• Business owners considering a sale
• Corporate, in-house M&A team members
• Private equity professionals who manage or oversee the execution of their firm’s deals
• Diligence providers who want a closer understanding of the M&A process and how their due diligence transaction reports are likely to be used

And a ‘nice to know’ for:

• Legal and other advisers involved in the M&A process who seek a better understanding of the different ways due diligence fits into an M&A process – and how the findings may affect a transaction, in particular, but not only, in financial terms

Why do we need due diligence in M&A transactions? And how should we use it to best effect?

Warren Buffett was famously disparaging about the need for detailed due diligence. Yet it’s a fact that many deal makers have overlooked material which, properly understood, would undoubtedly have affected their appetite for the deal, or, at least, the terms on which they choose to execute.

Academic studies suggest that over 70% of M&A deals fail in some way. Diligence, or the lack thereof, can be the culprit, but other factors are also at play.

In 2025, deal-making remains frenetic. Yet there is less certainty than ever, as businesses deal with one shock after another and struggle to rebuild or reinvent themselves. Trading history is of limited value.

For all these reasons, we need due diligence more than ever - not more due diligence, but smarter and better diligence, with the focus completely revised to reflect the new business environment. Due diligence is central to transactions. If it were ever a box-ticking exercise, it certainly is not one now. In 2025, the history of a business, whilst interesting to understand, is no key to its prospects.

Even on a small to medium-sized transaction (£20 million or so), due diligence costs can exceed £500,000. Buyers know they need due diligence, but do they know how to get the best value for it? In 2025, buyers need to think afresh about where due diligence should focus and the scope of the diligence services they need.

The main advisers - financial and legal - on transactions have a role to play too. The importance of directing the due diligence enquiries and correctly interpreting the findings goes to the heart of any deal. Good advice to the client will add value and help ensure a successful outcome. Reports need to focus on what matters.

For their part, many diligence providers have a high sense of commercial awareness. They welcome the chance to discuss key findings with their clients. They consistently try to make their reports relevant and commercially focused, feeding directly into the value of a transaction.

Redcliffe Training's M&A due diligence training course brings M&A practitioners up to date with every aspect of how to engage with due diligence: how to conduct it, where to look, what to look for, and how to incorporate the findings into your transactions. It is a vital update on making sure we make wise and proper use of due diligence to get our deal terms right.

In Beyond a Boundary, a book ostensibly about cricket, CLR James posed the question, ‘What do they know of cricket, who only cricket know?’ This due diligence in mergers and acquisitions course takes this approach: the introduction makes clear that due diligence is not a stand-alone product, but is intimately woven into the complexities of the M&A process.

This course will help clients and their advisers understand how to approach the due diligence aspects of a transaction. It will give you a better understanding of what due diligence entails, how to engage with diligence providers, and how to manage the due diligence process. Starting with an explanation of due diligence itself, this due diligence in M&A course considers how due diligence is procured, tours the growing range of areas covered by due diligence, and concludes by explaining how the findings link to other areas of a transaction.

Due diligence in M&A training will provide a strong emphasis on practical, real-world issues throughout, with key messages and learning points underpinned by examples from the trainer’s extensive experience.

This training is designed for anyone working in M&A, in particular those who may need to use due diligence in the course of their work.