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The crucial role of due diligence in mergers and acquisitions

Aymard Jimenez
Aymard Jimenez
Research and Due Diligence Specialist, LSEG
Christopher Sindik
Christopher Sindik
Head of Research Consultancy, Refinitiv Due Diligence

It is essential that all parties to a proposed transaction fully understand the risks and opportunities inherent within any potential mergers and acquisitions (M&A) deal. Thorough and robust due diligence delivers the information and insights needed to make informed decisions.

  1. The complexity of mergers and acquisitions obliges the buyer and seller to gather and analyse all of the important information required before proceeding.
  2. Both buyer and seller are able to conduct due diligence to enhance the information they already have and to gather additional relevant information.
  3. Refinitiv can offer help, with a range of due diligence reports that delve into a subject’s background, financial and reputational standing

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The complexity of the M&A landscape

M&A activity is typically complex, high value and long-term in nature. It is therefore vital that both buyer and seller understand the full range of obligations, liabilities, risks and opportunities inherent in any M&A activity – and that they do so before finalising a merger or acquisition.

Most M&A transactions, however, are privately concluded, which means that the availability of important information relating to commercial, financial, legal and administrative aspects of the parties may not be readily available.

This presents an immediate hurdle, because the viability of any potential merger or acquisition depends on the quality of information that informs the decision to proceed. Complete information gathering and analysis are crucial, and both directly impact the future success of any deal.

Only with the right information and insights can stakeholders make informed decisions, based on a sound understanding of the full spectrum of potential risks and opportunities that exist prior to entering into an agreement.

The earlier risks are flagged, the better equipped stakeholders are to evaluate M&As

It is also important to note that it is not just adequate data on the merger target or acquisition that is required. Considering the growing reputational and other risks associated with third-party networks, the universe of third parties associated with the target must also be investigated.

Due Diligence reports: Our reports are designed to enable you to make critical decisions around your business partnerships

The pivotal role of due diligence

Due diligence is the process of gathering and verifying relevant information about a company or person to enable the ordering party to make an informed decision. The ordering party can be the buyer or the seller – due diligence has value for both parties in any M&A scenario.

Due diligence should enhance the quality of any information that the parties already hold, but should also provide additional information, for example, that relating to ultimate beneficial ownership (UBO), media coverage, litigation, enforcement actions or reputational concerns.

For buyers, thorough due diligence reduces the risk involved in purchasing another company.

Adequate due diligence gives the buyer transparent oversight and enables an accurate valuation of the target company based on the risks and opportunities it brings to the table.

Access to detailed, relevant information equips buyers to make informed decisions as to whether or not to proceed, adjust the terms of a potential deal or walk away.

For sellers, due diligence provides an indication of the real market value of their company, which in turn allows them to set realistic purchase price expectations.

Moreover, the seller can obtain detailed, relevant information on the prospective buyer, and this will help them to decide if entering into the agreement would be beneficial, both from a financial and a reputational perspective.

Tangible help when and how you need it

Refinitiv can offer immediate and tangible help to both buyers and sellers in the M&A arena. We offer a range of due diligence reports that delve into a subject’s background, financial and reputational standing.

  • Our Snapshot due diligence report provides a preliminary view of risk to help you determine the next steps, if any, that are needed in the due diligence process.
  • Standard due diligence reports analyse subjects for major derogatory information and identify company owners and directors. These reports include foreign language content and local checks for litigation, bankruptcy and other red flag issues.
  • In instances where deeper knowledge is deemed necessary – for example when heightened risk is suspected or detected – our Refinitiv due diligence (RDD) reports offer detailed information and in-depth insights.

Beyond this range of reports, however, we also offer help and expertise throughout the M&A lifecycle.

Our Due Diligence Centre centralises and analyses the risks associated with third parties and guides stakeholders throughout the third-party relationship – from initial assessment, onboarding and ongoing monitoring to renewal or end of life.

In addition, our Managed Screening Service highlights positive and possible matches for any customer identification program. Heightened risk individuals and entities can then be screened against our World-Check Risk Intelligence database.

If potential risk is identified – for example, if politically exposed persons (PEPs) are found to be associated with the target company – then the purchaser has the opportunity to investigate the findings further, change the terms of the agreement or walk away from the transaction.

The critical importance of thorough and robust due diligence during any M&A activity cannot be over-emphasised.

Due diligence is a vital element in the accurate determination of value in any M&A scenario, and the right data and insights can help all parties to make better decisions based on a thorough understanding of the full range of risks and opportunities that exist.



What is the role of due dilligence?

Due diligence is the process of gathering and verifying relevant information about a company or person to enable the ordering party to make an informed decision.