Investigative Due Diligence
By Joann Arweiler and Peter Woglom with BDO, a partner of the M&A Leadership Council
Access to information is one of the keys to managing risk in an M&A transaction. Investigative due diligence (IDD) should be placed alongside legal and financial diligence as a critical component of a buyer’s diligence process. IDD allows deal teams to identify risks that may not be apparent from a review of materials in a data room or through interviews with the seller’s management team. Through a robust IDD process, acquirers can make more informed acquisition decisions about potential reputational, operational, legal or regulatory risks.
Depending on the underlying industry and geography of the target company, these risks could range from:
- Significant undisclosed regulatory or litigation concerns
- Bribery or corruption in tendering processes
- Issues regarding corporate social responsibility deficiencies
- Workplace culture issues that include potential discrimination or sexual harassment
Failure to conduct adequate IDD in an M&A transaction may leave the buyer vulnerable to suffering the following:
- Reputational risks
- Financial repercussions such as successor liability
- Disgorgement of contracts possibly won through illicit means
- Impairment of the value of assets
- Remediation costs
The performance of comprehensive IDD serves to alert M&A due diligence teams to potential risk exposures that may impact the valuation or structuring of a contemplated transaction.
