Week 2 Due Diligence Flashcards
Who uses info gathered from due diligence?
Board members
Managers
Cornerstone investors
Financiers
What are five forms of due diligence?
Financial/tax HR/people Legal (brands/trademarks/license) Engineering Environmental
What is the purpose of due diligence?
To identify any potential risk for the acquirer and all them to make an informed decision.
How is the transaction value measured of acquiring a company?
Multiple of earnings (EBITDA x multiple) - net debt
Discounted future cash flows
Share market value + premium
What are 7 historical aspects that due diligence focuses on?
- 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)
Why merge or Aquire?
- protective value (market share)
- synergy (cost saving)
- growth value (expand market base)
- under performance value (replace mgmt)
- risk mgmt (diversification)
What is the formal bid process?
- explain intentions
- lodge statement with ASIC
- formal offer to target
- lodge starker a with ASIC
- target issues statement (accept or decline)
What is included in bidders statement?
- bidder identity
- bidders current relevant interest
- consideration to be paid
- bidders post takeover intentions
- other disclosures
What are the 2 main aims of the competition and consumer act 2010?
To maintain a competitive market and stop companies from creating monopolies.
Protect competitors and consumers
What are the two main aims of the corporations act 2001?
Ensure procedural fairness during takeovers
Protect shareholders
What are the 7 factors the the Competition and Consumer Act 2010 looks at when deciding if a merger/acquisition would lessen market competition?
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
Under corporations act what is the % of shares which gives control to a company?
20%
What are the two exceptions that allow an entity to hold more than 20% interest in a company?
- formal takeover bid
- 3% creep in 6months
What are the two exceptions that allow an entity to hold more than 20% interest in a company?
- formal takeover bid
- 3% creep in 6months
