Due diligence

Due diligence (DD) is an important task in determining whether or not to carry out an M&A and is a valuable opportunity for direct contact with management and business personnel of the target company prior to the acquisition.

The core areas of due diligence are financial DD to analyze financial risks and to understand historical normalalized profitability, tax DD to validate potential tax liabilities, legal DD to validate potential risks related to legal rights and obligations, and pending cases, and business DD to assess market growth and to analyze business probability.

Depending on the characteristics of a project, due diligences are performed by professionals in various areas to identify issues in an acquiring company's personnel management system and organizational deployment systems, ITDD to measure issues in the information system and the value of IT assets, and operational DDs to identify operational inefficiencies and improvement points.

PwC provides a comprehensive one-stop service that organically combines bespoke due diligence services from the perspective of maximizing business value after M&A.

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

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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.

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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.

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Real estate due diligence

  • We provide financial due diligence to corporates and to the holding company of real estate in a share transaction.

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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.

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Venture due diligence

We assess the qualities and enthusiasm of management, technological superiority, and the feasibility of alternative products and services.

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Our Team

Shigeyuki Yoshihara

Partner, PwC Advisory LLC

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Ken Kawamura

Partner, PwC Advisory LLC

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Mitsuhiro Mihira

Partner, PwC Advisory LLC

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Nobutaka Kanazawa

Partner, PwC Advisory LLC

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Masaya Kato

Partner, PwC Advisory LLC

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Shinsuke Suzuki

Partner, PwC Advisory LLC

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