Understand the Importance of Due Diligence and the Impact of COVID-19 on This Process
There are many preparations to be made for a company to be sold, or even to better understand the business’s capabilities and potentially buy and expand. When the M&A process is in its more advanced stages, that’s when Due Diligence takes place.
Through Due Diligence, information from various sectors is thoroughly examined to identify potential mistakes, preventing future corporate difficulties. With this article, Grupo Value invites the reader to fully understand the importance of this assurance work in various situations.
>> Also read: The M&A Landscape in the Current Scenario
Due Diligence and the Pandemic
Regarding the pandemic itself, there was not necessarily a direct impact, except where, due to the Coronavirus, the company finds itself compelled to take certain actions to maintain its cash flow. Another point is that the pandemic brought some opportunities, but also set back the market in some aspects.
For example: if Company K is interested in purchasing Business L, and COVID-19 had a negative impact on L, the transaction may not proceed, and therefore, a Due Diligence would not be carried out. However, a client approached Value from a different perspective: unrelated to the Coronavirus, they simply wanted to undergo the process to ensure certain financial procedures were being followed.
But after all, what is Due Diligence?
The Due Diligence process is a thorough assurance work focused on a specific period or point in the information presented by a company, aimed at verifying the consistency of the data. It usually happens in the following situations: departure of a partner; entry of a new partner into a partnership; an outsider who is not familiar with the company; a sale and the M&A (merger and acquisition) process; or a company merger.
It is essentially a deeper audit, analyzed over an extensive period, not limited only to accounting statements, but also checking whether the company has any hidden liabilities or verifying the truthfulness of the information provided. Thus, it becomes an assurance task.
Knowing what Due Diligence entails, it is clear why organizations engage in this process. For example, if I own Company A and am determined to acquire Company B, I set a price. However, this price may be conditioned upon my verification of the information provided by Company B to ensure that I am not exposed to any fiscal contingencies.
This is because Company B might have failed to submit certain declarations or made incorrect tax assessments, but not only in the fiscal scope. Issues can also arise in environmental, civil, labor, and criminal areas. There are several items to be analyzed in Due Diligence, beyond the accounting and tax domains.
>> Watch the live recording: Behind the scenes and current status of the tax reform project.
How does it work in practice?
Value has certain areas of expertise, primarily in accounting, tax, and some aspects of labor law, especially related to calculations. Therefore, our Due Diligence process is based on these pillars, and in collaboration with our partners, we carry out additional complementary work in areas such as legal, environmental, criminal, and civil.
On a macro level, the service involves identifying or suggesting to the client the appropriate period for the Due Diligence process, and determining whether it is more advantageous to take a sample-based or a complete approach. Throughout the process, we select the appropriate team for each project, with an internal segregation of specialties, assigning experts from each area to handle their respective fields.
>> Read our article: The landscape of mergers and acquisitions (M&A) in the current scenario
A Valuable Due Diligence
In terms of our work, we have the previously mentioned approach for conducting Due Diligence, as well as another format that also occurs quite frequently: supporting the Due Diligence process. This happens when we participate in a company’s buying and selling transaction, representing the seller’s side.
When the buyer advances in the negotiation and moves to Due Diligence, due to conflicts of interest, we do not perform the Due Diligence ourselves. However, we can still accompany the process, ensuring that all impartiality requirements are being met, without any interference. Our role is simply to ensure that the process is being carried out properly and in accordance with best practices.
Our Cases
In terms of cases, we have major companies in our portfolio, such as: Farmácia Nissei, where a Due Diligence was carried out based on a sample period. We also worked with John Deere, where we participated in negotiations on the seller’s side, overseeing the diligence process. Additionally, we have worked on cases such as Recco and Novo Horizonte Alumínios, where Due Diligence was performed based on specific sampling.
This is the Ideal Scenario for Your Business
If you’re interested and considering conducting a Due Diligence for your business, count on Value! Our qualified and experienced professionals are prepared to deliver the best results. Let’s talk!
