According to Global M&A Industry Trends: 2021 Mid-year Update, a PwC analysis, the Merger & Acquisitions activity continued to globally increase between April and June of 2021, this being the fourth consecutive quarter when the value is bigger than one trillion dollars. The local Mergers and Acquisitions market also continued to grow in the first half of 2021, reaching 1.8 billion euros. According to the analysis, the growth trend will continue until the end of this year and during the next one, amid increased demand around technology and innovation, but also the very large amounts available to investment funds and special purpose procurement companies.
M&A are complex commercial transactions, in which the risk of fraud is not necessarily hidden in figures, a visible and relatively easily accessible chapter by both entities involved in the transaction, but rather in other business segments, which a due-diligence analysis thoroughly verifies. Too often, however, organizations that want to grow by selling or buying another company, only look at the facade – the figures or other information that is public or presented by the other involved entity, the final decision being based on limited or improved information.
Which of the companies involved in a M&A process needs specialized business intelligence?
Even if, at first sight, the obvious answer is “the company that will make the purchase”, our 13 years of experience have shown us that the reality is much more complicated than that. As part of a transaction, both organizations involved assume risks – both the one that makes the financial offer and pays the value established by the contract, and the one that is to be acquired.
A M&A investigation and a due diligence analysis are recommended to both companies involved in a merger, takeover, or acquisition process, so that the interests of both entities are better protected before, during and after the completion of the transaction.
3 important aspects you should consider
- Good security outweighs danger.
Although an investigative approach may seem lack of trust for the potential future business partner, the truth is that prevention remains the best tool for a company to protect its interests – let’s not forget that almost half of companies have been defrauded in the last 2 years, according to another study conducted by PwC, this being the second highest level of fraud in the last 20 years. A complex due-diligence analysis should be performed before the M&A bid is put on the table or accepted. The reality, however, shows us that this research stage is carried out either superficially, as a ticked task, in an advanced stage of the M&A process, or not at all.
- The highest risks are also the best hidden.
In the complex process of taking over, merging, or acquiring a company, the analysis of figures and documents is the responsibility of financial analysts and lawyers. But the most vulnerable truths are well camouflaged in the snatches of any organization, needing specialists in corporate investigation and fraud risk management, who will research, document, and analyse the discovered information, to protect the interests of the organization to be acquired or to be traded.
- Look at the future through the eye of the past.
Were there any intentions from other companies to acquire this organization? If so, why haven’t they materialized? If not, was it a strategic decision on the part of the company or were the opportunities and offers simply lacking? What is the company’s main decision makers’ reputation? Has the company faced crises, be they PR, internal, trade union or other kinds of crisis? How were these resolved? Were there any litigations that the company lost? Was the company defrauded from the outside, by its own employees or by a mix between the two? Were there any breaks in the supply chain or is there a risk of them happening? What are the procurement procedures within the company? What kind of organizational culture does the company have? What is the staff retention?
Were there any other takeovers from this company with other entities? What happened to the end? What was their post-acquisition journey? Were there any disputes?
The answers to questions like the ones above, from independent and objective sources, are pieces of the puzzle that, in the end, will reveal the complete description of the company to be acquired or that will acquire, beyond the figures in Excel.
What is the role of an M&A investigation?
Information means power. What a private investigator does when we talk about finding out the truth and managing risk in a takeover and merger action is to find out and document that information that, although not visible at a first glance, can signal vulnerabilities or even contraindications in regarding the trading action and the future of the new entity.
The M&A due-diligence analysis analyses aspects such as, but not limited to:
- General analysis of the company to be purchased or to be purchased.
- Background check investigations for key decision makers or even for the entire management board.
- Economic-financial investigations, investigation of certain or fictitious patrimonial assets, investigation of subsidiaries, phantom companies and fictitious assignments etc.
- Background check investigations for company’s business partners, collaborators, customers, and employees.
- Investigations into disputes in which the company has been or is involved.
- Investigations of similar previous actions and their results over time.
- A risk analysis on the company’s vulnerabilities and its segments that need fraud risk management or other types of risks.
- Corporate investigations, so that the business partners’ integrity and their intentions’ and submitted documents’ veracity do not present any risk.
- Specific investigations regarding the history of commercial or any other type of connections the company and its shareholders may have, including relevant family ties.
- Investigations regarding the market in which the company operates, its reputation, competitors’ analysis.
- Corporate anti-fraud investigations, which analyses aspects from embezzlement to scams, bribes or more or less complicated scams.
- Investigations into possible undeclared interests of the parties involved, beneficiaries undisclosed or vulnerabilities in organizational culture.
As a conclusion, we can say that the due-diligence analysis in the M&A process, has as main objectives:
- To confirm that the purchase price requested or offered is appropriate.
- To confirm or deny the good faith and veracity of the information and a document submitted by the management of the future business partner.
- To identify and assess the risks, whether financial, legal or otherwise, that could prevent the completion of the transaction or jeopardize the resulting new entity.
- To identify and assess the condition of the goods to be procured, whether they are material or not.
- To identify information, details or aspects that may influence, in any way, the financial offer.
- To identify any regulations or restrictions that may affect the new transaction or the entity that will appear.
How long does an M&A investigation take and who performs it?
Depending on the size of the companies involved and the complexity of the transaction, the time required for a private investigation agency to conduct the complex investigation and M&A due diligence analysis is between 2 weeks and 2-3 months, being known that one of the reasons a merger and takeover process can fail is too long period of time, which leads to loss of interest for at least one of the parties involved.
The selection of a private investigator with expertise in M&A investigations is particularly important, given that information not fully or discovered in time can have the most serious negative consequences on the entire takeover, merger, and acquisition process, as well as on the companies involved.
SPIA Romania’s team of specialists is certified and authorized to carry out multiple types of private investigations, including M&A actions, hostile takeovers, and other areas with a high degree of difficulty, which require multiple specializations. The business intelligence and M&A investigations services we offer are tailor-made, which means that you will benefit from our personalized know-how and consultancy, precisely structured on the needs of your business. Contact us and we will be with you during the entire takeover, merger or acquisition process and we will support you permanently, so that your interests and those of your company are best protected.