Spotlight On...
Contact Jos Raben
Partner - Mazars Transaction Services
Tel: +31 88 277 23 89 Email:
jos.raben@mazars.nl Web:
www.mazars.nl
Due Diligence SPOTLIGHT ON... Jos Raben, Partner at Mazars Transaction Services
“Due Diligence is not the first step in the M&A process but can indeed be considered an important part of a structured and organized M&A process.”
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azars’ Jos Raben has over fifteen years of experience as a financial consultant and auditor. His transaction experience includes (cross border) financial (vendor)
due diligence assistance and other transaction related work in connection with acquisitions, disposals, listings and venture capital for Small and Mid Caps but also SME’s.
Why is due diligence an important step in the M&A process?
Due Diligence is not the first step in the M&A process but can indeed be considered an important part of a structured and organized M&A process. The Due Diligence is focused on the value drivers, future cash-flow, opportunities and risks surrounding the M&A process that can be either from a buyer’s perspective but also from the perspective of the seller. The outcome of the Due Diligence is often used for valuation purposes, (re) negotiations, guarantees and/or warranties. The scope of the Due Diligence needs to be well defined and provide the information to answer the typical questions of the possible buyer, investor and/or financier.
What are the key stages of the due diligence process?
The Due Diligence needs to be well prepared and structured. Key in this process is communication and availability of personnel of the Target to provide the necessary information in a proper manner. To me, each stage of the Due Diligence can be considered equally important to produce a high quality, well documented, substantiated and fit for purpose Due Diligence report. Although the ‘confirmation of the factual accuracy by the Target’ is often cut out
of the process I still consider this an important part of the Due Diligence which can prevent long discussions afterwards during the (re) negotiations in the final stage of the acquisition process. Deals can go south because of the frustrations that can arise in the final stage of the acquisition process, a factual accuracy confirmation can sometimes prevent these discussion and therefore we always advise our client to give the Target the opportunity to confirm de factual accuracy.
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How can findings from the due diligence process be utilised to maximise financial
and tax positions?
A financial and or tax Due Diligence can result in a change of the transaction structure; a share transaction can change to an asset deal or vice versa. The outcome of the Due Diligence will give important input for the operational but also financial integration and more often the optimization of the tax structure. Based on our experience the possibility to offset losses, optimize transferpricing, the use of fiscal unity’s (VAT and CIT) and tax treaties’ can result in substantial savings and increase the cash-flow available for dividends or repayment of loans.
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What risks might the due diligence process identify that could impact a transaction,
particularly in your jurisdiction, if not handled appropriately?
It is always an advantage when the Due Diligence team is structured in such a way that it has experience and proper knowledge of the sector in which the Target operates. I consider this important for the quality of the Due Diligence report which will result in more added value to the Client, but also mitigates the risk that certain industry specific risks are not detected and investigated. Besides the specific industry risks’,
a risk in the Dutch business- and therefore M&A environment can be considered the pensions. In the Dutch territory there are various pension schemes active and sometimes various pension arrangements within one Company. These risks need to be addressed otherwise could be a serious threat for the transaction or after the transaction.
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Is there anything else you would like to add?
At this moment we can conclude that in 2013 the M&A deals stay behind 2012 and the outlook for 2014 is still surrounded by a lot of uncertainties. This also results in competition between the M&A advisors and especially the Due Diligence specialists. When you ask me the answer cannot be the decrease of rates & budgets, since in the end that will have a negative effect on the quality of the Due Diligence. We have seen these developments in the Audit of financial statements and this are hard lessons if you only count the number of claims against the various Auditfirms. This is not good for the Clients and other stakeholders either. The answer needs to be innovation. At Mazars we have therefore developed MazarsPro, this program is used by us to simulate the projections of for example the working capital, operational income etc. and is also used to test the assumptions about the development of costs and revenues as presented by the seller or Target company. The Financial Due Diligence needs to be focused more and more on the future rather than the history and MazarsPro is a very efficient tool to enable this.
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