MERGERS AND ACQUISITIONS: PRE-ACQUISITION INVESTIGATIVE DUE DILIGENCE BDO Consulting

MERGERS AND ACQUISITIONS:
PRE-ACQUISITION
INVESTIGATIVE DUE DILIGENCE
BDO Consulting
December 1, 2009
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Webcast Overview
Agenda
I. Introduction
II. Investigative Due Diligence (IDD)
III. Essential Elements of IDD
IV. Sources of Information
V. Due Diligence Checklist
VI. Legal Due Diligence
VII. Types of Risk
VIII. Third-Party Vendors and IDD
IX. Benefits of IDD
X. International IDD
XI. Conclusion/Q&A
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Introduction
“Pre-acquisition due diligence should
be constructed to give as good an
insight as possible into post-deal
implementation as to isolating
pre-deal risks.”*
*Due Diligence: The Critical Stage in Mergers and Acquisitions by Peter Howson
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Investigative Due Diligence (IDD)
What Is It?
• Investigative Due Diligence is a broad concept involving
an in-depth pre-deal review of transactions, principals
and key players.
– Specific needs drive an array of services involving
overt and covert field operatives.
– Initial evaluations often yield the most successful,
cost-efficient results.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Legal Due Diligence
Impact on Investment
• Businesses and individuals seeking investment opportunities
can be self-promoters.
• In-depth background information about individuals within and
behind an entity is important.
• These problems may be serious enough to signal a need for
further inquiry.
• Identify and address pre-existing issues (legal or otherwise) or
poor business practices.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Third-Party Vendors and IDD
FCPA IDD on Third Parties
• Conduct IDD with respect to a target company’s agents and business
partners and keep accurate records of your IDD efforts.
• Determine the extent of international sales in high-risk countries.
• Review the amounts of retainers, commissions and expenses paid to
agents (the reasonableness factor).
• Determine which major anti-bribery and anti-corruption laws are
applicable.
• Interview relevant employees, agents, distributors, customers.
• Investigate allegations of suspicious payments to government
officials.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
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We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Benefits of IDD
Where is the Value?
• Decision-makers who increasingly rely on IDD in their
evaluation of:
– Business investments
– Mergers and Acquisitions (stock deals and asset purchases)
– Joint ventures/partnership arrangements
– Board appointments
– Customer, contractor and vendor relationships
– Executive and key employee hires
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
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We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
International IDD
What Is It?
• International due diligence typically covers the business ethics and
practices of a company, its principals, economic and political
standing in the business community, its relationships with
government and government agencies, any sign of financial or tax
difficulties, past or current civil or criminal/legal problems and any
evidence of bribery or corruption.
• Selected foreign media, etc. can be accessed via commercial
databases available; however, the actual work must take place
locally.
• Rules that govern access to information and records outside the
United States is often more restrictive and differs from country to
country.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Conclusion
• It is imperative to have all the information available before a
decision is rendered.
• Investigative due diligence provides you with the necessary
tools to make an informed business decision.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Contacts
Mr. Katz is a Partner in BDO Consulting, a division of BDO Seidman, LLP, and the Practice Area Leader for
Post-Acquisition Dispute Resolution Services and Economic Damages. He has twenty two years of experience
providing forensic accounting and litigation consulting services to attorneys, businesses and individuals. Mr.
Katz analyzes financial issues, prepares damage analyses, designs court exhibits, provides testimony at trial
or deposition and serves as a neutral arbitrator.
Mr. Katz’s experience includes serving as an arbitrator, consultant and expert witness in post-acquisition
disputes. His work in those matters includes the analysis and interpretation of acquisition agreements,
evaluation of claims for breaches of representations and warranties and allegations of bad faith, as well as
the application of Generally Accepted Accounting Principles (GAAP). As a consultant and expert witness in
lost profit matters, Mr. Katz’s experience includes, determining damages in cases involving breaches of
contract, the improper hiring of employees, business torts and employee disputes. His other work involves
forensic accounting analyses, investigation of allegations of fraud and business valuation.
Jeffery M. Katz,
CPA/ABV, CFE
Partner
BDO Consulting
New York, NY
jkatz@bdo.com
212-515-8302
A Certified Public Accountant, a Certified Fraud Examiner and Certified in Financial Forensics, Mr. Katz has
provided opinion testimony on numerous occasions, including before the United States Bankruptcy Court,
Delaware Chancery Court, New Jersey Superior Court, the American Arbitration Association, the National
Association of Securities Dealers and JAMS. He has also testified before the New York Supreme Court and has
served as the arbitrator in private arbitrations. Accredited in Business Valuation from the American Institute
of Certified Public Accountants, Mr. Katz has presented on valuation issues to professional societies, on fraud
issues related to investigations at hedge fund conferences and to the United States Securities and Exchange
Commission and to various organizations on stock-option backdating. Mr. Katz has also published articles on
key issues within the post-acquisition dispute
Education
BS, Accounting and Economics
Professional Affiliations
American Institute of Certified Public Accountants
New Jersey Society of Certified Public Accountants
Association of Certified Fraud Examiners
American Bar Association
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Contacts
Neil F. Moran is a Managing Director in BDO Consulting, a division of BDO Seidman, LLP, in the New York
office. He has more than 35 years of experience in the private sector and FBI, and leads the firm’s
Investigative Due Diligence practice.
Previously in his career, as a Special Agent, Undercover Coordinator and Supervisory Special Agent in the
FBI’s largest field office in New York City, Mr. Moran was actively involved in investigations concerning
sophisticated art thefts, truck hijackings, organized crime, terrorism, insurance/mail fraud, money
laundering, international auto theft rings, federal civil rights violations and labor racketeering. Notably, in
1993, Mr. Moran was awarded the FBI Shield of Bravery and the FBI Star by the Director of the FBI, in
connection with his actions while arresting members of a truck hijacking ring.
At BDO Consulting, Mr. Moran conducts investigations involving misappropriation and embezzlement, money
laundering, mortgage fraud, bank fraud, securities fraud, product liability, industrial espionage,
copyright/trademark infringement, bond claims, employee misconduct and corporate internal investigations.
Neil F. Moran
Managing Director
BDO Consulting
New York, NY
nmoran@bdo.com
212-885-7416
Mr. Moran has extensive experience testifying before state and federal grand juries, federal criminal court
and New York State criminal court. While at the FBI, he frequently lectured and provided instruction on
sensitive operations and investigative development. He is also a former Adjunct Professor at St. John’s
University in the College of Professional and Legal Studies.
Education
BA, Niagara University
Professional Affiliations
FBI Agents Association
Society of Former FBI Agents
St. John’s University Criminal Justice Advisory Council
Association of Certified Fraud Examiners
U.S. Marine Corps Law Enforcement Foundation
NYPD Honor Legion
American Bar Association – Associate Member
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Contacts
Robert M. Weiner is a Director at BDO Consulting, a division of BDO Seidman, LLP, in the New York office
where he focuses on international investigations and investigative due diligence. Mr. Weiner’s experience
includes the supervision of international due diligence assignments and FCPA investigations throughout the
world, employee misconduct, securities fraud, money laundering, kickback schemes and counterfeit goods.
He has led large scale criminal and white collar financial investigations for Fortune 500 corporations,
banking/financial institutions and law firms. Mr. Weiner developed internal compliance programs to conform
to federal regulations including, FCPA, Sarbanes-Oxley, Bank Secrecy Act, Know Your Customer Requirements
and USA Patriot Act. In addition, he designed and implemented a comprehensive mortgage
fraud and prevention program for a national title insurance company.
Throughout Mr. Weiner’s career, he has been involved in numerous investigative and fact gathering
assignments, due diligence reporting, compliance programs and litigation support. His experience also
includes conducting legal and transactional due diligence and coordinating financial due diligence for
domestic and cross-border M&A transactions while practicing law.
Robert M. Weiner, JD,
CIPP
Director
BDO Consulting
New York, NY
rweiner@bdo.com
212-515-5479
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Education
JD, Environmental Law, Pace University School of Law
BA With Distinction, Pace University
Certified Information Privacy Professional
Professional Affiliations
American Corporate Counsel Association
New York City Bar Association
New York City Criminal Bar Association
Connecticut Bar Association
Association of Certified Fraud Examiners
International Association of Privacy Professionals
BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Q&A
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
BDO SEIDMAN, LLP
• BDO Seidman, LLP is a national professional services firm
providing assurance, tax, and consulting services to a wide
range of publicly traded and privately held companies and
not-for-profits.
• Guided by core values of integrity, trust, professionalism,
independence, and service for almost 100 years, BDO has
provided quality service and leadership through the active
involvement of our most experienced and committed
professionals.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
BDO CONSULTING
• BDO Consulting combines investigative, technical, and
industry resources to respond to suspected fraud,
irregularities, and workplace incidents.
• The diversity and depth of our investigative capabilities
enables our professionals to approach each matter with a
focus on the specific tasks that yield informative results in a
timely manner.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
BDO CONSULTING
Investigative Due Diligence
• We offer clients high-level professional advice, unlike the
routine background screens or reports of raw data available
elsewhere
• Our comprehensive approach to investigative due diligence
leverages the extensive experience and varied backgrounds of
our professionals
• We determine the necessary scope of our due diligence
research and provide clients with the most meaningful
information available, alerting clients to risks, disclosure
issues and potential negotiation points.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
BDO CONSULTING
Investigative Due Diligence
Pre-Transaction Services
• Discover, verify and analyze information to alert clients to potential risks and advise
on their mitigation through a comprehensive process of in-depth background checks,
interviews and detailed analyses.
• Conduct proactive due diligence on the individuals or entities with which they do
business can help expose and mitigate hidden risks.
• Assist financial institutions, private equity firms, hedge funds, institutional
investors, high-net worth individual investors and their legal counsel in identifying
and avoiding risks by exposing the concealed elements of prospective transactions
and relationships.
Accounting Due Diligence
• Assist clients by analyzing financial reporting issues, conducting reviews for
accounting compliance and conducting collateral audits/confirmations.
• Perform forensic accounting reviews (e.g., Foreign Corrupt Practices Act, computer
forensics).
• Assist clients by performing reviews of federal, state, local and international taxes.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
BDO CONSULTING
Investigative Due Diligence
Financial Due Diligence
• Provide financial and operational due diligence services to assist buyers, investors or
lenders in assessing a target organization's business transactions.
• Perform due diligence for lenders on asset-based loans, quality of earnings analyses
and cash flow analyses.
• Investigate events and conditions that may affect an organization and help identify
“soft spots” and potential issues that may impact deal negotiations (e.g., deal
structure, terms of purchase agreement).
• Focus on the early identification of hidden problems that could be "deal breakers" as
well as pinpointing underperforming assets or areas where strategic/operational
improvement could increase profitability.
Post-Transaction Services - Business Integration Services
• Assist clients with business integration services including identifying cost-reduction
and profit-improvement opportunities, conducting fraud risk assessments or
implementing an effective anti-fraud program.
• Organizational redesigns to eliminate redundant functions, controls and positions, as
well as consult on process flow redesign and technology integration.
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BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.
Service Rules
sm
We built BDO Consulting by
consistently delivering superior client
service. Want proof?
Ask our clients.