This document discusses due diligence and company investigations for mergers and acquisitions (M&A). It defines due diligence as measures taken to gather and analyze information about a company's characteristics and risks before negotiating or deciding on a significant business transaction. The document outlines some key risk factors in M&A deals, including unique situations, conflicts of interest, and cognitive biases. It also describes the typical transaction process and parties involved in due diligence. Finally, it discusses how findings from due diligence can impact price negotiations, integration planning, and legal agreements.

1. M&A DUE DILIGENCE
FÖRETAGSBESIKTNING
Robert Sevenius
robert@sevenius.se
0733-829511
September 17, 2012
Seminar
Uppsala universitet
…towards a model for implementation

2. DEFINITIONS & DEMARCATIONS…
DUE DILIGENCE
• The due diligence rule
• Transactional due diligence
• Compliance due diligence
FÖRETAGSBESIKTNING
• ”en metod för att inhämta och
analysera information om ett
företags egenskaper och risker
inför förhandling och beslut om
en väsentlig affärstransaktion
rörande företaget”
Robert Sevenius © 2012
Due diligence
Such a measure of prudence, activity, or assiduity, as is properly to be
expected from, and ordinarily exercised by, a reasonably and prudent man
under the particular circumstances: not measured by any standard,
but depending on the relative facts of the special case.
(Perry vs Cedar Falls, 1893)

3. • Unique situation
• Conflicts of intrests
• Complex transaction
• Low flexibility/recilience
• Risk increasing decisions
• Cognitive bias
• Not as usual business
• Inappropriate response
• Misjudged value
• Instant risk transfer
STRUCTURAL RISK FACTORS
INDIVIDUAL RISK FACTORS
M&A = RISKY BUSINESS…
Robert Sevenius © 2012

4. SPA &
Closing
Contact &
Letter of intent
Strategy
phase
Integration
phase
Time
Transaction phase
DUE DILIGENCE
Preparation
Information
gathering
Analysis
Reporting
Implementation
TRANSACTION & PROCESS…
1 2 3 4 5
Robert Sevenius © 2012

5. SELLER COMPANY
BUYER COMPANY
(Principal)
TARGET COMPANY
DUE DILIGENCE
CONSULTANCY
(Agent)
SHARE
OWNERSHIP
ASSIGNMENT
CONTRACT
CONTRACT
PARTIES
IN SPE
INVESTIGATION
INFORMATION RECEIVERS INFORMATION PROVIDERS
PLANNED SHARE
ACQUISITION
ACTORS…
Robert Sevenius © 2012

6. LEGAL FUNCTION...
TOTAL RISK
SALES OF GOODS ACT
17 § ”The seller will take the risk for the buyer’s reasonable expectations on the goods”
20 § ”The buyer will take the risk for his or her knowledge – e.g. from investigation”
SELLER’S
RISK
BUYER’S
RISK
DUE DILIGENCE
(i.a.)
SELLER’S
WARRANTIES
(i.a.)
Robert Sevenius © 2012

7. IDENTIFY EVALUATE ACT
• Probability
• Consequence
• Assessment
• Prioritise
• Avoid
• Prevent
• Reduce
• Transfer
• Share
• Accept
• Prepare
1 2 3
RISK MODELS…
Robert Sevenius © 2012

8. ACTING ON FINDINGS…
PRICE
INTEGRATION CONTRACT & LEGAL
Robert Sevenius © 2012
• Price adjustments
• Price mechanisms
• Re-valuation
• Warranties / Indemnities
• Conditions precedent
• Operational coventants
• MAC - clauses
• Transaction structure
• Carve-out
• Day one issues
• Management agreements
• Integration programme
• Communication plan
• Synergy planning

9. TOWARDS A MODEL OF IMPLEMENTATION…
Forms
Before contract Signing - Closing Integration
Specific General
PRICE
INTEGRATION
CONTRACT
Findings/Risks
Time
1
3
2
Robert Sevenius © 2012