The Consortium has agreed to partner with Linklaters on the transaction. The next step in the acquisition is to conduct the due diligence process and write a due diligence report. Your task is to draft an email to the following teams who will be assisting on the due diligence process:
Before I elaborate on the module, I first want to clarify some of the technical language that this task requires you to understand.
Due Diligence 101:
Definition: Due diligence is the process whereby the target business or company is thoroughly investigated in order to see whether it is worth acquiring. The target will be analysed under a microscope from every possible angle. Due diligence can be split into two main branches:
- Financial Due Diligence: This concerns the target’s finances. The aim of Financial DD is to assess the target’s health and future performance. Examples include examining any correspondence with lenders and creditors, and discovering any potential liabilities which could limit the performance of the target company.
- Business Due Diligence: This branch assesses the business’ strategies, competitors, market and customers. Examples include undertaking Companies House searches and analysing the constitutional documents of the target company.
The findings of a due diligence process will be accumulated together into a due diligence report. This document summarises and highlights key issues or risks that the acquirer may want to consider before acquiring the target. This could include:
- Risks of current or future claims against the target company – eg; trademark or employment contract disputes;
- Whether lenders have been granted security over the target company’s assets;
- Whether shareholders have the power to approve of the acquisition (and the likelihood of them doing so).
It is up to the acquirer as to whether they wish to continue with the acquisition process. A due diligence report could heavily influence the terms of the sale, the sale price and on some occasions, if the sale even goes ahead.
Why is due diligence important? Acquisitions are both risky and expensive. The client must be 110% certain that they want to buy the company and take on the liabilities (if there are any) that come with it. Due diligence is where caveat emptor flourishes.
If you would like further information about how due diligence works in technology M&A transactions (such as this one), then click here.
Writing the email:
I would say that on a scale of 1-10 (with the latter end of the scale being extremely difficult), the task is a 4/10. Whilst being able to write an email is a relatively easy task for most of us, being able to briefly summarise a highly complex transaction yet still be informative is quite the challenge. However, as we have been given most of the information that we need for this task in the first module, it is not as difficult as it may initially appear to be. My advice would be to draft and edit the email a few times before submitting it.
Unfortunately, I do find one very minor fault in this task. The model answer begins with a reminder of a Project Jewel briefing that had occurred earlier in the week. This information was not made available in the video or the task summary. Consequently, I had written my email under the assumption that there had not been a briefing beforehand and that this occasion was the first time that the aforementioned teams had been notified of the transaction.
Luckily, the internship programme allows you to upload as many attempts at the task as you wish. Therefore, you can easily edit your email once you have compared it to the the model answer. This is extremely useful as it gives you a chance to review your work and amend it according to the post-submission advice that you are given!