Lack of solid, thorough due diligence is a major reason transactions fail.
Information gleaned from a rigorous due diligence process enables buyers and their lenders to know exactly what they’re acquiring. It can help sellers build trust and facilitate a smoother transaction by presenting buyers with transparent financial data and other information—corporate records; financial, supplier and vendor information; existing agreements; etc.—that confirms the buyer’s decision to buy. In fact, after preparing their own due diligence report, a seller may decide to raise the asking price.
Just as important as financial due diligence are IT and tax due diligence, and an analysis of the target that provides a deep understanding of its customers, past history and other critically important information.
Marcum works with private equity firms, hedge funds and corporate acquirers, providing a custom-tailored due diligence approach for domestic and international transactions.
Buy- and Sell-Side Financial Due Diligence
- Quality of earnings analysis.
- Integrity of EBITDA analysis – historical and pro forma.
- Financial due diligence.
- Working capital.
- Assessment of pro forma working capital and cash flow requirements.
- Customer and vendor relationships and agreements.
- Financial projections.
- Working capital.
- Compensation and benefits contracts.
IT Due Diligence
- Assessment of the organization’s IT infrastructure, organization, processes and management information systems. Buyers need to enter the transaction understanding potential issues that may require significant time and money to fix, or those that could negatively impact the business.
- Assessment of internal controls over financial reporting.
- Evaluating existing IT-related licenses and contracts.
Tax Buy- and Sell-Side Due Diligence and Structuring
Federal, state & local, and international due diligence:
- Summarize the company’s income tax and indirect tax footprint.
- Identify and quantify tax risks and exposures.
- Propose remedies or remediation plans to limit or eliminate tax exposures.
- Collaborate with attorneys regarding representations, warranties, indemnifications and escrows.
Tax structuring considerations to increase value:
- Legal entity considerations for tax minimization.
- After-tax proceeds analysis.
- Purchase price allocation and the potential to step-up the tax basis of the assets.
- Value of tax attributes.
- Structuring for tax-free rollover equity.
- Industry reputation and analysis of industry trends and market outlook.
- Review of management’s “track record.”
- Examination of past or undisclosed disputes or legal actions.
- Labor relations or regulatory issues.
- Strength of key commercial relationships.
- Pending liabilities, and more.