When it comes to acquiring a company, the potential buyer is often less well-informed than the seller about the company he is planning to buy. Due diligence is designed to redress this imbalance, by thoroughly analyzing the company’s key elements prior to any transaction.
AKCEAN analyzes commercial and financial documents, and coordinates accounting, legal and tax experts to carry out the audits.
What is an acquisition audit?
An acquisition audit consists of gathering and analyzing essential information about the company you are considering acquiring, enabling you to reconsider your decision. Although there is no legal obligation to do so, due diligence is essential given the stakes and risks involved in acquiring a company. It will provide you with in-depth insight into the company’s strengths and weaknesses .
There are several types of audit, each focusing on a specific area of the company concerned. Commonly performed audits cover the following areas:
- Sales: Evaluates sales performance, customer profile and competitive dynamics.
- Accounting and finance: Analyzes accounting documentation, ensures compliance of accounting principles with the reality of the financial situation, and identifies potential financial risks.
- Legal: Reviews legal documents, major contracts and current or potential legal issues.
- Tax: Examines the tax situation and assesses the risks of future tax audits.
- Social: Analyzes human resources management, employment contracts, employee status and benefits, and social obligations.
- Organizational: looks at the internal workings of the company.
- Technical: Evaluates the technical and IT tools used by the company.
- Environmental: Checks the company’s compliance with current environmental standards.
What are the main challenges?
The acquisition audit is of the utmost importance, as it aims to :
- Highlight the strengths and weaknesses of the target company;
- Present the future buyer with a realistic vision of the company;
- Measure the risks and, if necessary, adjust the terms of negotiation;
- Identify any irregularities; and
- Anticipate any changes to be implemented post-transaction.
Essentially, the aim is to ensure parity of information between the seller, who is generally well informed, and the potential buyer, who is often in search of additional data, before any decision is taken.
When should an acquisition audit be carried out?
We recommend carrying out the acquisition audit after the letter of intent has been signed. At this stage, the acquirer is already familiar with the target and has negotiated certain key points, and the audit will either validate or challenge the information shared by the seller.
It is advisable not to start this audit before the letter of intent has been signed, in order to avoid unnecessary costs should negotiations fail. However, the audit should not be launched too late either: the accounting, legal and tax experts must be given adequate time for an in-depth analysis. After the audit findings, it is also essential to anticipate a period of renegotiation.
The audit report
The acquisition audit is carried out by professionals (chartered accountants, legal experts, tax specialists, etc.). It is you, the potential buyer, who defines the objectives of this audit. The validity of the audit depends as much on the depth as on the meticulousness of the controls carried out; hence the importance of surrounding yourself with trustworthy professionals.
Following the audit, a report is sent directly to you. This document summarizes the essential information, the auditor’s findings, reservations and recommendations. The report’s conclusions may guide your decision as to whether and how to pursue negotiations. You have the opportunity to share certain conclusions with the seller in order to refine the negotiation agreement.
The acquisition audit enables you to fine-tune the terms of the transaction on the basis of a detailed review of the company’s key documents. It enables you to adjust your initial offer, whether in terms of price or by requesting specific guarantees to cover identified weaknesses.
Last update: October 2023
