Week 2 Due Diligence

Question 1

Who uses info gathered from due diligence?

Answer 1

Board members
Managers
Cornerstone investors
Financiers

Question 2

What are five forms of due diligence?

Answer 2

Financial/tax
HR/people
Legal (brands/trademarks/license) 
Engineering 
Environmental

Question 3

What is the purpose of due diligence?

Answer 3

To identify any potential risk for the acquirer and all them to make an informed decision.

Question 6

How is the transaction value measured of acquiring a company?

Answer 6

Multiple of earnings (EBITDA x multiple) - net debt

Discounted future cash flows

Share market value + premium

Question 7

What are 7 historical aspects that due diligence focuses on?

Answer 7

• conformity with GAAP
• conformity with acquirers accounting policies (recording CA)
• abnormal income, expenditure or capex (ie FX gains)
• trends in consumption of working cap
• related party transactions (can they be maintained?)
• tax (tax audit)
• contingent liabilities, commitments (ie obligations, risk of litigation)

Question 8

Why merge or Aquire?

Answer 8

• protective value (market share)
• synergy (cost saving)
• growth value (expand market base)
• under performance value (replace mgmt)
• risk mgmt (diversification)

Question 9

What is the formal bid process?

Answer 9

• explain intentions
• lodge statement with ASIC
• formal offer to target
• lodge starker a with ASIC
• target issues statement (accept or decline)

Question 10

What is included in bidders statement?

Answer 10

• bidder identity
• bidders current relevant interest
• consideration to be paid
• bidders post takeover intentions
• other disclosures

Question 11

What are the 2 main aims of the competition and consumer act 2010?

Answer 11

To maintain a competitive market and stop companies from creating monopolies.

Protect competitors and consumers

Question 12

What are the two main aims of the corporations act 2001?

Answer 12

Ensure procedural fairness during takeovers

Protect shareholders

Question 15

What are the 7 factors the the Competition and Consumer Act 2010 looks at when deciding if a merger/acquisition would lessen market competition?

Answer 15

a) actual and potential level of competition
b) barriers to entry
c) level of market concentration
d) countervailing power in the market (woollies or Coles)
e) likelihood of significant price increase and PM
f) substitutes in the market

h) likelihood of removing an effective competitor