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Book part
Publication date: 5 July 2016

Daniel R. Denison and Ia Ko

Due diligence refers to a comprehensive process of investigating and evaluating business opportunities in mergers and acquisitions. While early-stage due diligence usually…

Abstract

Due diligence refers to a comprehensive process of investigating and evaluating business opportunities in mergers and acquisitions. While early-stage due diligence usually encompasses financial and strategic assessment, one of the most important things in due diligence is looking at organizational culture at an early stage. This chapter takes stock of the existing research and practice in the area of cultural due diligence and evaluates the strengths and limitations. Based on the review of literature, we developed a framework for cultural due diligence to address the limitations of existing approaches. The framework illustrates a process to screen the M&A targets, gain insight into the target firm’s culture, and identify integration challenges. The process starts with more unobtrusive, indirect, and informal assessments of the target firm’s culture and moves onto more obtrusive, direct, and formal assessments.

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Article
Publication date: 29 April 2020

Philipp Maximilian Müller, Philipp Päuser and Björn-Martin Kurzrock

This research provides fundamentals for generating (partially) automated standardized due diligence reports. Based on original digital building documents from…

Abstract

Purpose

This research provides fundamentals for generating (partially) automated standardized due diligence reports. Based on original digital building documents from (institutional) investors, the potential for automated information extraction through machine learning algorithms is demonstrated. Preferred sources for key information of technical due diligence reports are presented. The paper concludes with challenges towards an automated information extraction in due diligence processes.

Design/methodology/approach

The comprehensive building documentation including n = 8,339 digital documents of 14 properties and 21 technical due diligence reports serve as a basis for identifying key information. To structure documents for due diligence, 410 document classes are derived and documents principally checked for machine readability. General rules are developed for prioritized document classes according to relevance and machine readability of documents.

Findings

The analysis reveals that a substantial part of all relevant digital building documents is poorly suited for automated information extraction. The availability and content of documents vary greatly from owner to owner and between document classes. The prioritization of document classes according to machine readability reveals potentials for using artificial intelligence in due diligence processes.

Practical implications

The paper includes recommendations for improving the machine readability of documents and indicates the potential for (partially) automating due diligence processes. Therefore, document classes are derived, reviewed and prioritized. Transaction risks can be countered by an automated check for completeness of relevant documents.

Originality/value

This paper is the first published (empirical) research to specifically assess the automated digital processing of due diligence reports. The findings are helpful for improving due diligence processes and, more generally, promoting the use of machine learning in the property sector.

Details

Journal of Property Investment & Finance, vol. 39 no. 2
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 2 May 2008

Nan J. Morrison, Guy Kinley and Kristin L. Ficery

The purpose of this of this paper is to show that judging by the number of mergers that still go sour, there is plenty of room to intensify the kind of operational due

Abstract

Purpose

The purpose of this of this paper is to show that judging by the number of mergers that still go sour, there is plenty of room to intensify the kind of operational due diligence that can uncover deal‐breaking factors before they destroy shareholder value. The paper focuses on specifically supply chain and IT as the two operations areas that deserve special attention because they still get short shrift.

Design/methodology/approach

The paper was written based on survey findings, publicly sourced information, case study work and Accenture's point of view based on work at over 400 M&A client engagements, three quarters with companies in the Global 1000. The two surveys cited are: 2006 Accenture study of supply chain managers; and Third Annual Due Diligence Symposium 2007 Survey.

Findings

The paper finds that when senior, experienced operations experts are involved in due diligence and pre‐merger planning, the major risks and potential deal breakers are exposed quickly – before deal momentum pushes things to the point where participants are reluctant to walk away. Also, with this input, deal makers can accurately assess the true investments needed as well as the “to be” operating costs of the joined companies. Those numbers can be used to adjust post‐merger cash flow projections, which are often extrapolated based on percentage estimates and projected top‐down rather than bottom‐up based on major projects under way or on operating model complexity. The operations experts allow new potential sources of value to be identified and considered as part of the valuation of the target company. The purchase price may then be adjusted up or down.

Originality/value

Dealmakers have significantly improved their understanding of, and skills in conducting, many elements of mergers and acquisitions, especially valuation and merger integration. Yet in example after example, due diligence processes have proven to be an Achilles heel. Dealmakers today must use every tool at their disposal to improve their odds of a successful deal while at the same time avoiding bad acquisitions. That means placing the same importance on operational due diligence as on valuation, traditional due diligence and merger integration. It also calls for using operational due diligence to pinpoint initiatives that protect and create value after an acquisition. The shift to this next level of due diligence will require enhancing rather than replacing traditional due diligence activities. The due diligence lists will be longer, yes, but importantly, they will be forward‐looking, gauging current observations against future operating needs.

Details

Journal of Business Strategy, vol. 29 no. 3
Type: Research Article
ISSN: 0275-6668

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Article
Publication date: 8 February 2021

Howard Chitimira

Money laundering activities were allegedly rampant and poorly regulated in the South African financial markets and financial institutions prior to 1998. In other words…

Abstract

Purpose

Money laundering activities were allegedly rampant and poorly regulated in the South African financial markets and financial institutions prior to 1998. In other words, prior to the enactment of the Prevention of Organised Crime Act 121 of 1998 as amended (POCA), there was no statute that expressly and adequately provided for the regulation of money laundering in South Africa. Consequently, the POCA was enacted to curb organised criminal activities such as money laundering in South Africa. Thereafter, the Financial Intelligence Centre Act 38 of 2001 as amended (FICA) was enacted in a bid to, inter alia, enhance financial regulation and the combating of money laundering in the South African financial institutions and financial markets.

Design/methodology/approach

The paper provides an overview analysis of the current legislation regulating money laundering in South Africa. In this regard, prohibited offences and measures that are used to curb money laundering under each relevant statute are discussed. The paper further discusses the regulation and use of customer due diligence measures to combat money laundering activities in South Africa. Accordingly, the regulation of customer due diligence under the FICA and the Banks Act 94 of 1990 as amended (Banks Act) is provided.

Findings

It is hoped that policymakers and other relevant persons will use the recommendations provided in the paper to enhance the curbing of money laundering in South Africa.

Research limitations/implications

The paper does not provide empirical research.

Practical implications

The paper is useful to all policymakers, lawyers, law students, regulatory bodies, especially, in South Africa.

Social implications

The paper seeks to curb money laundering in the economy and society at large, especially in the South African financial markets.

Originality/value

The paper is original research on the South African anti-money laundering regime.

Details

Journal of Money Laundering Control, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1368-5201

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Abstract

Details

Making Mergers and Acquisitions Work
Type: Book
ISBN: 978-1-78743-350-2

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Article
Publication date: 28 January 2020

Ehi Eric Esoimeme

This paper aims to critically examine the modern slavery statements of Anglo American Plc. and Marks and Spencer Group Plc. to determine the level of effectiveness of the…

Abstract

Purpose

This paper aims to critically examine the modern slavery statements of Anglo American Plc. and Marks and Spencer Group Plc. to determine the level of effectiveness of the risk assessment and risk mitigation measures of both companies and provide recommendations on how the risk assessment and risk mitigation measures of both companies could be strengthened.

Design/methodology/approach

The analysis took the form of a desk study, which analysed various documents and reports such as the UK Modern Slavery Act 2015, the UK Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015, the UK Guidance issued under Section 54(9) of the Modern Slavery Act 2015, the 2018 Global Slavery Index, funded by Forrest’s Walk Free Foundation, the Anglo American Plc. Modern Slavery Statement of 2017/18, the Marks and Spencer Modern Slavery Statement of 2017/18, the Financial Action Task Force Guidance on the Risk Based Approach to Combating Money Laundering and Terrorist Financing (High Level Principles and Procedures) 2007, the Financial Action Task Force International Standards On Combating Money Laundering and the Financing of Terrorism and Proliferation (The FATF Recommendations) 2012, the Australia Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (as amended), the Financial Transactions and Reports Analysis Centre of Canada Guidance on the risk-based approach to combatting money laundering and terrorist financing 2017 and the Central Bank of Nigeria (Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations, 2013.

Findings

This paper determined that the standard due diligence measures and the enhanced due diligence measures of Anglo American Plc. are not effective enough to identify/assess the risk(s) of modern slavery in the supply chains reason being that Anglo American Plc. does not use diverse methods/methodologies for her due diligence programme. This paper, however, determined that the standard due diligence measures and the enhanced due diligence measures of Marks and Spencer Group Plc. are effective enough to identify/assess the risk(s) of modern slavery in the supply chains because Marks and Spencer adopts diverse methods/methodologies for her due diligence programme. This paper also determined that both Anglo American Plc. and Marks and Spencer Group Plc. adopt diverse methods for the monitoring of their corrective action plans which are designed to mitigate the modern slavery risk(s) associated with high-risk suppliers. For example, Anglo American Plc. monitors anti-modern slavery compliance with the use of both internal Anglo American teams and third-party auditors to ensure that the identified issues are adequately addressed.

Research limitations/implications

This paper focuses on Section 54 of the UK Modern Slavery Act 2015 and the Modern Slavery Statements of Anglo American Plc. and Marks and Spencer Group Plc for the year 2017/18.

Originality/value

Several articles have been published on this topic. Among them, is an article by Stefan Gold, Alexander Trautrims and Zoe Trodd titled “Modern slavery challenges to supply chain management”, Supply Chain Management: An International Journal, Vol. 20 Issue: 5, pp.485-494 and an article by Stephen John New titled “Modern slavery and the supply chain: the limits of corporate social responsibility?”, Supply Chain Management: An International Journal, Vol. 20 Issue: 6, pp.697-707. The article by Stefan Gold, Alexander Trautrims and Zoe Trodd drew attention to the challenges modern slavery poses to supply chain management. Although the article briefly talked about the risk-based approach to monitoring supply chains for slavery, it did not discuss about the due diligence measures that UK firms are required to apply during risk identification and risk assessment, and the risk mitigation measures that will address the risk(s) that have been identified. The article by Stephen John New examines legal attempts to encourage supply chain transparency and the use of corporate social responsibility methods. Though the article mentions the UK Modern Slavery Act 2015, more attention was paid to the California Transparency in Supply Chains Act [S.B. 657], State of California, 2010), enacted in 2011 and in effect from 2012. The article analysed the California Act without critically discussing the risk assessment procedures for UK companies. In addition to discussing the different stages of the risk assessment/risk management process, this paper will examine the modern slavery statements of Anglo American Plc. and Marks and Spencer Group Plc. This paper will provide recommendations on how the risk assessment/risk mitigation measures of both companies could be strengthened. This is the only paper to adopt this kind of approach. The analysis/recommendations in this paper will help UK companies to design effective due diligence procedures for their supply chain.

Details

Journal of Financial Crime, vol. 27 no. 2
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 23 October 2007

Odilon Patrick Lemieux and John C. Banks

The purpose of this paper is to show how Sarbanes‐Oxley is motivating corporate boards to bring heightened scrutiny for all aspects of the acquisition process, including…

Abstract

Purpose

The purpose of this paper is to show how Sarbanes‐Oxley is motivating corporate boards to bring heightened scrutiny for all aspects of the acquisition process, including valuation. This paper examines how in addition to the high‐tech M&A strategic objective, the decision on the post closing integration strategy should be considered as part of a target's firm valuation.

Design/methodology/approach

The paper argues that, within the high‐tech sector, the target firm characteristics in relation to the market are not sufficient for the basis of valuation. Planned management interventions, including the acquirer's management integration strategy decision, should also be considered. It further argues that intellectual capital retention, an important element of the target firm's valuation, is directly related to how closely the pace and degree of integration matches the acquirer's strategic objectives and the outcome of the due diligence.

Findings

Based on the findings from a set of interviews with M&A practitioners in the high‐tech field, due diligence, post closing integration planning and identity are viewed as important factors to the acquisition outcome. They appear not to be considered for the target firm valuation, which may result in an acquirer paying an excessive premium.

Practical implications

Finally the paper proposes a framework to guide high‐tech firms to select an integration strategy and its valuation impact in relation to the acquisition strategic objective, the due diligence outcome and the integration strategy.

Originality/value

The outcome of this project is raising the importance of due diligence and post integration strategy in relation to other factors that impact transaction outcome such as intellectual capital retention and valuation.

Details

Management Decision, vol. 45 no. 9
Type: Research Article
ISSN: 0025-1747

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Book part
Publication date: 17 June 2019

Fadi Alkaraan

It is well recognized that Mergers and Acquisitions (M&A) are important and popular ways of achieving corporate growth. Motivations include a search for monopolistic power…

Abstract

It is well recognized that Mergers and Acquisitions (M&A) are important and popular ways of achieving corporate growth. Motivations include a search for monopolistic power and growth, desire to respond to a low level of profitability in the existing business portfolio, improvement of market position, filling out product line, protection of supply or distribution, gain of control, acquire what is available, to internationalize, or to reduce risk. However, M&A strategies are not risk-free, and arguably one of the CEOs greatest challenges. The last several decades have witnessed a surge of interest in top executives. The strategic choice ranks as one of the dominant roles and responsibilities of senior management. Executives’ experiences, values, and personalities greatly influence their interpretations of the situations they face and, in turn, affect their choices (Hambrick, 2007).

Over the past few years, sad stories of M&A failures have been reported and that can be attributed to poor synergy, bad timing, cultural issues, hubris, complexity, and ineffective strategic control mechanisms including poor due diligence process. M&A strategies require a series of choices made over time by actors at various organizational levels; therefore, it cannot be seen as an independent activity but as an integral part of the formal rational procedure as well as the cognitive process. Strategic cognition plays a very important role in the diagnosis of strategic issues and the formulation of problems (Schwenk, 1988). Pre-decision control mechanisms permeate all levels of strategic investments process to ensure that the investment decision aligns with organizational strategy (Alkaraan & Northcott, 2007). Due diligence processes are comprehensive appraisal of strategic investment opportunities undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential. Due diligence processes refer to verification, investigation, or audit of a potential deal or investment opportunity to confirm all facts, financial information, and to verify anything else that was brought up during an M&A deal or investment process.

This chapter explores the influence of due diligence processes on strategic investment decision-making (SIDM) processes. Further, it provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Furthermore, the chapter adopts a strategic perspective on M&A, particular attention has been paid to the influence of due diligence and other related strategic control mechanisms on SIDM processes.

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Article
Publication date: 14 August 2007

Franz Knecht and Vera Calenbuhr

In business activities and transactions the focus is often on tangible figures, although “soft” factors are often equally or more important. Environmental and social

Abstract

Purpose

In business activities and transactions the focus is often on tangible figures, although “soft” factors are often equally or more important. Environmental and social management schemes identify related intangibles in business operations, making them subject to fact‐based decision making. The applicability of these schemes is reduced when confronted with new situations such as mergers, acquisitions, and other asset transactions. Here due diligence (DD) procedures review factors deemed material to such a transaction including, since recently, also environmental and social ones. The purpose of the paper is to describe and conceptualize a DD procedure addressing social and environmental factors.

Design/methodology/approach

The paper describes an indicator‐based algorithm for the systematic identification of social and environmental risk factors in asset transactions. The application of the method is demonstrated and tested by example of case studies.

Findings

The paper presents and discusses an environmental and social DD procedure. The performance of the procedure is discussed on the basis of concrete case studies.

Practical implications

The DD‐method is applicable in a wide range of firms operating in cost‐driven markets for identifying social and environmental risk, putting a price tag on it, and thereby enables the firm to manage it.

Originality/value

Starting from fieldwork by one of the authors the paper introduces formally a social and environmental due diligence procedure.

Details

Corporate Governance: The international journal of business in society, vol. 7 no. 4
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 29 July 2014

Gaye Pottinger and Anca Tanton

This paper aims to examine the approach of UK institutional funds to considering flood risk to property investments in the light of their fiduciary duty, the widespread…

Abstract

Purpose

This paper aims to examine the approach of UK institutional funds to considering flood risk to property investments in the light of their fiduciary duty, the widespread floods in 2007 and 2010 and the predicted increase in future incidence due to climate change. It explores the due diligence process and the challenges to investment decision-making and to property valuation. The case is made for further research to establish the extent of UK investment property potentially at risk from flooding, the degree of risk exposure and the way the risk is translated into valuations.

Design/methodology/approach

A comprehensive literature review informed the design of interviews with senior managers in major investment funds, their professional advisers and other stakeholder representatives, including environmental consultants, valuers, solicitors, lenders and the insurance industry. Case studies illustrate how the due diligence process is used to identify risks, inform purchase decisions and devise mitigation and management actions.

Findings

Property represents about 4 per cent of investments managed in the UK, but there is no clear picture of where and how much could be at risk of flooding. There is a common false assumption among investors that risk levels are unlikely to change and a reluctance to expose an otherwise hidden problem.

Originality/value

Property is an important diversification asset in investment portfolios, underpinning individual pension, insurance and savings plans. Prior research indicated flood risk to commercial investment property was under-researched; a need for awareness raising; and for guidance relevant to investors and their professional advisers.

Details

Qualitative Research in Financial Markets, vol. 6 no. 2
Type: Research Article
ISSN: 1755-4179

Keywords

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