DUE DILIGENCE

THE CHALLENGES OF DUE DILIGENCE

Mergers and acquisitions, especially when acquiring a small or medium-sized company, increasingly raise the issue of due diligence outside the financial sphere, which has long been well understood. The actual cost, value or impact of safety, environmental and human health management and regulatory compliance are rarely assessed at the time of the transaction. Yet they can have a devastating impact on the real value of the company. Analysis in these areas can be difficult to perform:

• It requires new scientific and regulatory skills that are rarely deployed in M&A transactions.
• Relative information rarely exists in a form that can be directly used for the evaluation of the company.

Private Equity (PE) can impose unexpected responsibilities on companies in terms of EHS, sustainable development and protection of human health. The costs of regulatory compliance and the penalties to which the buyer may be exposed can ruin the interest of the transaction or even deal a fatal blow to its brand image.

For this reason, investors, private equity firms and companies are increasingly being asked to include evidence of sound management of environmental and health impacts and safety in the due diligence phase of mergers and acquisitions.

These issues are strongly addressed by regulatory compliance in the various markets in which the company operates. Ensuring that the manufacturing methods and products marketed comply with the various global regulations is essential to the financial success of the operation, so that they can continue to be manufactured, marketed and sold without interruption.

Due diligence is the guarantee of the value of the purchased company and its real assets.