KPMG - Dating in the business world - Tarryn Kopke, (CA)SA Manager Deal Advisory
KPMG - Dating in the business world - Tarryn Kopke, (CA)SA Manager Deal Advisory



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KPMG - Dating in the business world - Tarryn Kopke, (CA)SA Manager Deal Advisory

2016-12-01

As individuals, the process of finding a life partner can be a daunting one. There are over 7 billion people on earth and you are expected to find one person with whom to build a future. The investment required to find and 'secure' this one person may seem insurmountable; hours of grooming, endless small talk, feigning interest in sports/activities of which you have no prior knowledge, expensive presents, thoughtful presents, the list goes on.

Well, the same applies for business dating. Searching for and finding a business which you feel compliments your own is a challenging task. Once a target company has been identified the courtship begins; information is shared, relationships are built, future plans are determined together, letters of intent may even be issued.

But what now? Both parties have put their best foot forward up to this stage but the relationship cannot proceed any further without firm commitment from both sides.

At this point in a normal relationship, one would generally face one of the most daunting challenges of dating - meeting the family. All investment made prior to this moment may have been in vain should you fail to impress at this stage or should any red flags be identified.

In the business world, performing a due diligence is essentially the equivalent of taking a potential partner to meet your family for the first time. Who could be a better judge of your potential partner than someone who is completely independent of the relationship you have just built, yet firmly in your corner with your best interests in mind.

A due diligence should not be regarded as a necessary evil, an expense to be endured. But rather an investment in protecting your capital. A due diligence exercise will assist you in:
  • Getting the tough questions answered while still enabling you to maintain a good working relationship with the potential target;
  • Identifying red flags which may be potential deal breakers or which may enable you to negotiate a better purchase price;
  • Identifying areas where representations and warranties are needed to reduce deal risk;
  • Understanding how the targets' forecast stacks up against historical actual performance; and
  • Enhancing deal value through the identification of synergies not previously identified.
"But we can do all of this in-house you may say." Well yes, you can. However, after the courtship process, do you really want to? Targets generally do not like due diligences, they are time consuming for the target and one of their purposes is the identification of things that are wrong in the target's business. Months of close courtship spent developing the deal and your relationship with the target may unravel under the pressure of a due diligence, especially in cases where problems are identified.

Using an independent third party may just help you to keep a good deal alive or, more importantly, assist you in identifying deal breakers before it is too late, leaving your capital and reputation intact. 

tarryn.kopke@kpmg.co.za Tel: (031) 327 6000




KPMG - Dating in the business world - Tarryn Kopke, (CA)SA Manager Deal Advisory

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