Due Diligence & Expert Reports

What are Due Diligence & Expert Reports?

Due diligence and expert reports contain financial reviews and analysis of various business aspects including legal, financial and operational issues. These reports assess the performance of your company and provides advice on your performance or operational issues and potential of a new product or project.

Due Diligence reports are typically prepared on a specific topic and often multiple Due Diligence reports are prepared by different advisers for the one transaction or event. Common Due Diligence reports include:

• Financial & Tax Due Diligence: Provides a detailed review of the key financial metrics of the business and identifies any potential risks and opportunities
• Legal Due Diligence: Provides an overview of the legal framework in the business and the key regulatory considerations as well as identifying any material risks within the body of legal documents available
• Commercial Due Diligence: Provides an overview of the market(s) within which the company operates, the company’s position within those markets and the risk and opportunities that exist within each. It may also include forecasts for future pricing and volumes
• Technical Due Diligence: Provides an overview of the physical assets of the business and physical locations in which the company operates (if applicable). This overview includes an assessment of the condition of those assets and their appropriateness for current and planned operations. In addition it will provide an assessment of any risks to the business that may arise in relation to the physical assets or locations. It may also include forecast operating costs and capital expenditure.
• Environmental Due Diligence: Provides an overview of the activities of the business that may be subject to environmental regulations, an overview of the relevant regulatory regimes and an assessment of any material environmental risks.
• Insurance Due Diligence: Provides an overview of the current insurance policies in place and their appropriateness having regard to the risk profile of the business. In doing so, the report will highlight any shortfalls in insurance coverage and areas where insurance costs could be reduced. This may also incorporate a forecast for insurance costs.

Why are Due Diligence & Expert Reports important for business today?

Due Diligence reports are prepared specifically for an event. However, after the event, they can be used by internal staff as:

• A list of key issues to be addressed prior to any subsequent event
• A source of useful explanatory material on the business that can provide background for future projects

Why is it important for an event tomorrow?

Due diligence and expert reports are important for an event tomorrow, as they help:

• Potential investors to reduce the cost of their participation in the early stages of the proposed transaction given they can review the due diligence reports themselves initially at no additional cost
• Potential investors to reduce the cost of a full due diligence exercise as they only need to engage their own advisers to review the existing reports rather than perform all work from scratch
• You to increase the competitive tension in your process by increasing the number of participating parties (due to the cost reduction factors described above)
• You to increase the likelihood of a favourable outcome as a result of this increased competitive tension

Pros of addressing Due Diligence & Expert Reports

• Increased participation in your proposed transaction process
• Increased competitive tension when parties make proposals
• Increased likelihood of a favourable outcome
• Useful reference guide for future strategic planning

Cons of not addressing this topic

• Reduced participation in your proposed transaction process
• Greater reliance on a few parties to deliver a favourable outcome and reduced competitive tension
• Increased impact if one or two parties fall out of your transaction process