Due Diligence Panel

What is it?
You may be certain that you require assistance with your investigations during an acquisition or investment process, but you may be ensure of the type and extent of due diligence procedures that would best suit your transaction. We have designed a "Due Diligence Panel" to help you understand the various financial, tax, legal and labour procedures that could be performed.

How should it be used?
The following Due Diligence Panel is divided into four areas of review: FINANCIAL, TAX, LEGAL and LABOUR. In each area we set out different scopes of due diligence procedures that may be applied depending on the type and size of acquisition or investment that make up the transaction, and on the initial assessment of risk that has been performed.

For detailed scopes of due diligence procedures, please contact us (info@ilvsilver.com)

Areas of review:

Financial Due Diligence
Description of possible reviews and their scopes of work

1. Full due diligence

What is it?
Full due diligence procedures are designed to give the acquirer or investor the best possible information with which to make decisions and with which to negotiate. Although full scope procedures are designed to be thorough and cover all applicable areas of financial and business review, priority is given to risk areas or areas of key concern to the acquirer or investor.

When is it recommended?
Full due diligence procedures are recommended in most situations. There is usually no substitute for high quality information and analysis in corporate transactions, especially in competitive bid situations or where the acquisition price can be negotiated. However, the information needs of the acquirer or investor should be balanced against the timeframes and levels of inherent risk involved in a transaction.

2. Limited review

What is it?
A limited review comprises less than full due diligence procedures. Limited reviews aim to reduce the scope of work to target specific areas, usually in the context of a restricted timeframe for due diligence and existing information available (such as a vendor due diligence report).

When is it recommended?
Limited reviews are common where the acquirer or investor already has access to certain information on the target company, and can safely identify risk areas or areas of key concern. Limited reviews may also be used following a desk-top review as part of a two-stage approach (see below).

3. Desk-top review

What is it?
A desk-top review comprises a high-level review of key financial information. The scope of a desk-top review normally includes analytical review procedures on historical profit and loss account, balance sheet and cash flow information, and may also include a high-level review of projected results. Analytical review procedures are complemented with key financial management interviews. Analysis of source documentation is usually limited or non-existent.

When is it recommended?
A desk-top review is usually recommended if the investment risk is low. An example of where this may be the case is in the context of a group acquisition. Whereas full due diligence procedures may be applied to larger group companies, a desk-top review may be more efficient for smaller group companies, which have limited relative importance to the deal. Desk-top reviews may also be used as part of initial transaction reviews, possibly before a Letter of Intent has been agreed.

4. Two-stage approach

What is it?
A two-stage approach allows the investor or acquirer to limit due diligence procedures initially before further procedures are performed at a later date. Either a desk-top review or limited review procedures make up a first stage of due diligence. Depending on the context of the transaction and of the investor or acquirer’s concerns, it may be decided that further due diligence procedures are required. This additional due diligence may include tailored scope items or be full due diligence procedures.

When is it recommended?
A two-stage approach aims to avoid potentially time-consuming and costly due diligence procedures where they may not be required. It is usually only recommended, however, where the investor or acquirer has a significant amount of time to analyse a transaction, or where negotiations are still in early stages. A two-stage approach is often most applicable where strategic decisions form a key part of an investment decision, as initial procedures allow the acquirer or investor to reassess the transaction from a strategic point of view and investigate further as required.

Tax Due Diligence
Description of possible reviews and their scopes of work

1. Full due diligence

What is it?
A review that provides an understanding of the tax situation of the company for all years open to tax inspection. Full due diligence procedures provide an in-depth knowledge of the company’s tax policies, detection and estimation of possible tax contingencies and an evaluation of the possible consequences of a tax inspection.

When is it recommended?
Recommended for all acquisitions and investments, given that it allows the identification of possible tax risks and as a result provides the acquiring party information with which to reduce its risk. Full due diligence procedures are especially recommended where the target company operates in a business sector where there are typically tax risks.

2. Diagnostic review

What is it?
A detailed review of the most recent closed tax year open to inspection, together with a less-detailed review of all other years open to tax inspection. A diagnostic review aims to provide an understanding of the tax situation of the company and of its most significant tax policies, but also aims to determine and quantify as far as possible any tax contingencies and the consequences thereof, as well as an evaluation of the possible consequences of a tax inspection.

When is it recommended?

Recommended for operations in which the target company is well-established and operates in a mature business sector, where activities are very similar year on year. A limited review is also recommended where the percentage shareholding being acquired is not too significant.

3. Limited review

What is it?
A detailed review only of the most recent closed tax year open to inspection in order to understand the company’s most significant tax policies, detect and estimate possible tax contingencies based only on the most recent tax year, together with an evaluation of the possible consequences of a tax inspection.

When is it recommended?
Recommended for operations in which the target company is well-established and operates in a mature business sector, where activities are very similar year on year. A limited review is also recommended where the percentage shareholding being acquired is not too significant.

4. Quick review

What is it?
A review of limited documentation with the aim of identifying the main areas of potential tax risk. According to the results of this review, additional procedures can be included to understand which tax risks may be significant.

When is it recommended?
Recommended for transactions where a low shareholding percentage will be acquired and for a short period of time, in addition to those operations where there is a limited time-frame and limited documentation available, but where the acquirer wishes to gain at least some understanding of the tax situation of the company.

5. Specific review

What is it?
A review of only certain tax areas based on an assessment of the nature of the company and of its business activities, with no coverage of other areas that would be included in other review processes described above.

When is it recommended?
Recommended for transactions in which the particular characteristics of the target company mean that the fuller review procedures described above do not cover or exceed the procedures that are deemed necessary.

 



Legal Due Diligence
Description of possible areas of review

1. Company Administration

What is it?
Review of the registry situation of the company, that all legal books and documents have been filed correctly. Review of the shareholding of the company and of its directors and administrators. Review of shareholder agreements. Identification and review of any powers of attorney granted by the company. Review of participations held in subsidiaries, associated companies or other investments, and powers over these companies. Review of the correct filing of annual accounts.

When is it recommended?
Recommended for all operations.

2. Contracts

What is it?
Review of all mercantile contracts held by the company. The review will make a particular focus on those contracts that have a significant impact on the business or those that may be affected by the transaction. Verification and review of change of control clauses in all contracts.

When is it recommended?
Recommended for all operations, especially where there is a change of control. Particularly recommended in transactions where the value or commercial situation of the target company depends to a large extent on the contracts to which it has subscribed.

3. Title to Assets

What is it?
Verification of the title, charges and burdens of the most significant assets of the business.

When is it recommended?
Especially recommended in operations where there exist certain assets that form a significant or crucial part of the target company’s business.

4. Insurance

What is it?
Review of insurance policies held by the company and review of pending claims. Of particular relevance are those insurance policies that are required by law.

When is it recommended?
Recommended for all operations, in particular those operations where the company is obliged to obtain insurance in order to comply with legislation relevant to its business activity.

5. Administrative / Environmental Law

What is it?
Review compliance with environmental legislation and administrative legislation specific to the company’s business activity. Review the state of the company’s licences and authorisations to carry out its business activities.

When is it recommended?
Recommended where the target company operates in regulated sectors and/or where the business activity may have an environmental impact.

6. Intellectual and Industrial Property

What is it?
Review of the Intellectual and Industrial Property situation of the company (trademarks, patents, utility models, logos, trade names, domain names etc.). Review of compliance with legal requirements, and review of employee contracts and contracts with technological suppliers with respect to Intellectual Property.

When is it recommended?
Particularly recommended where Intellectual or Industrial Property forms a key part of the target business’s assets, or where the company holds contracts with key technological suppliers.

7. Data Protection

What is it?
Review of compliance with personal data protection legislation.

When is it recommended?
Recommended where the company has electronic databases of personal data, and in particular if the company holds sensitive data or sells databases.

8. Grants

What is it?
Review of grants, bonuses and incentives. Review of the conditions of award and any implication of the transaction on their award.

When is it recommended?
Recommended for all operations where the company has received any form of grant, bonus or incentive.

9.  Litigation

What is it?
Review of current and potential future claims or proceedings, be they judicial, administrative or arbitral. Review of pending judicial resolutions for or against the company.

When is it recommended?
Recommended for all operations, in particular for companies that are or may be implicated in claims or proceedings, in order to assess the possible level of risk.