Financial due diligence
The purpose of financial due diligence is to provide understanding on the financial condition of a target company or a business during the execution phase of a M&A transaction and to provide information that contributes to the decision-making of the investment in a project.
Typically analyzed items in financial due diligence are as follows:
- Profitability analysis: understanding business performance trends from the past to the current fiscal year, analyzing normalized level of profitability by removing non-recurring items and analyzing business plans in comparison with past results
- Working capital analysis: understanding the asset-based nature of working capital, validating the demand for funds with consideration of seasonality, analyzing the level of required working capital and analyzing the standard working capital
- Analysis of Capital Expenditures: understanding historical level of Capital Expenditures and Capital Expenditure plans
- Net debt analysis: extracting interest-bearing debt and similar items, and identifying off-balanced/contingent liabilities
Business due diligence
Not only is business due diligence to verify the growth potential of the market and examining the business plans of the target companies. The evolution of technology and growing awareness of sustainability management have brought a wider range of the considerations taken about management and business than before. Even in the area of business due diligence, in addition to the analysis on the market potential of the business and the source of competitiveness, there is a growing need for the perspective on methods to enhance the value of business after M&A. At PwC, strategy business due diligence is carried out by strategic and financial professionals, making full use of strategic thinking and financial knowledge.
Commercial due diligence
Primarily evaluating the marketability of M&A target companies/businesses
Integrity due diligence
Evaluate key persons in M&A target companies for any critical issues related to their attributes.
Governance due diligence
Confirmation of governance policies for group companies and identification of issues for constructing governance after M&A
Sustainability due diligence
Evaluate the extent of sufficiency with the company's sustainability management targets by extracting excessiveness regarding companies’ sustainability management goals and from the perspectives such as CSR procurement.
Operational due diligence
Although buyers often conduct commercial due diligence to confirm the marketability of the target business, we believe the evaluation of the business is incomplete without undertaking operational due diligence
- Can existing operations correspond to rapid business growth in a deal with expected rapid sales growth?
- Is the size of reducing operations appropriate in a deal that is expected to turn-around?
- Is there duplication in operations and rationality to integrate functions in a deal that anticipates cost synergy.
In order to evaluate the validity and feasibility of the business plan, a clear understanding of the current operational capabilities are required.
The evaluation points for each function that constitutes the operation differ from industry to industry, and a high level of expertise is required to perform the evaluation. At PwC, industry experts from Japan and overseas in each industry execute operational due diligence.
Real estate due diligence
- We provide financial due diligence to corporates and to the holding company of real estate in a share transaction.
Vendor due diligence
Vendor due diligence (VDD) is intended to organize the anticipated issues from the sellers’ standpoint when divesting a company or a business, and to compile information that contributes to the analysis performed by a potential buyer.
VDD enables to maximize the value of a target company or a business by indicating to potential buyers the risk factors quantified through the VDD report and the seller's voluntary response to the risk area. Disclosure of VDD reports and pre-organized information will also contribute to the efficient divestment process. In particular, it is extremely effective to disclose VDD reports for projects that require the preparation of pro-forma financial statements in conjunction with business reorganization and for projects with a large number of potential buyers.
Venture due diligence
We assess the qualities and enthusiasm of management, technological superiority, and the feasibility of alternative products and services.