What is the acquisition audit? Explanation of important checks before M&A

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The acquisition audit is to investigate the target company in detail before the acquisition of the company.

English is also called “Due Diligence”

Purpose

Unexpected risk discovery
Reasonable price judgment
Avoiding troubles after acquisition
Terms and Conditions
Preparation of Integration Plan

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The acquisition audit is like a corporate health check before buying a company.

In this article,

Meaning of Acquisition Audit
What to do
Why important?
The Perspective of Investors

to beginners.

What is the acquisition audit?

Acquisition Audit

Procedure to examine the actual situation of the target company before M&A

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Generally called due diligence, DD.

In the M&A Guidelines of the Small and Medium Enterprise Agency, DD is a survey that is carried out by experts mainly in order to assess the risks of the target company.

In other words, the acquisition audit is

“How to check if there is really a problem before buying”

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When acquiring a company, there is a problem that you do not know only the financial statement.

For this reason, the buyer is with a specialist,

財務
Legal
Tax
人事
IT
Business
Environment

Check the details.

Why is it necessary?

only if the acquisition audit is required,

Because there is a problem that you do not know on the surface

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For example, the following problems will be a major loss if you come up after the acquisition.

Hidden debt
Unpaid overtime
Tax risk
Legal Risks
Contract violation
粉飾決算
Main Customer Release
Aged IT System
Keyman Re キーement

If you find it before the acquisition, you can deal with it by price s and contract conditions.

However, after the acquisition, a significant impact on the performance and stock price of the buyer will occur.

Typical audit items

There are several types of acquisition audits.

項目	内容
Financial DD	Profit, debt, recurring funds, accounting
Legal DD	Contract, Permission, Litigation, Property
Tax DD	Tax declarations,徴 risks and losses
HRDD	Leave rate, labor issues, re ement benefits, unpaid overtime
IT DD	System aging, security, and integration costs
Business DD	Market, Competitiveness, Customer Dependency, Growth
Environmental DD	Soil pollution, environmental regulations, and equipment risk

not all at the same depth.

Focus items will change depending on the size, industry, acquisition purpose, and risk of the project.

Financial DD is especially important

Financial DD is the most popular among investors.

Financial DD

Is it really profitable?
Is sales temporary?
Is coarse interest persistible?
Is borrowing too heavy?
Is there a lack of cash?
Are there any problems with inventory or receivables?
のれんが過大にならないか

Check

Especially important is the difference between accounting and actual cash.

Even if the profit seems to come out, if the receivable cannot be recovered or the inventory is oversized, it will be a problem after the acquisition.

Legal DD

Legal DD confirms the legal risksリスク by the company.

For example:

Sign up
Terms and Conditions
Litigation and Disputes
License
Property
Shareholders
Compliance

Others

The most important part is the Change of Control clause.

This is a clause that requires cancellation of contracts and consent of the other party if the company’s administrative right changes.

If the main contract is canceled after the acquisition, the premise of the acquisition may be broken.

Importance of IT DD

IT DD

Corporate acquisition may require system integration after acquisition.

However, if the system of the target company is old,

High integration cost
Security Risk
Data migration is difficult
There is a risk of business suspension
Complex SaaS and cloud contracts

This is a problem.

Especially in financial, EC, logistics, healthcare and SaaS companies, IT DD is more important.

Impact on acquisition price

If a problem is found in the acquisition audit, the terms of acquisition may change.

For example:

Lower acquisition price
Adding a Terms
Thicken your warranty
Add Compensation clause
Disco e Acquisition

In other words, the acquisition audit is

“Risk”ation”

and

Price Negot” Materials

Comment

Why Investors Focus

When M&A is announced, the stock price may move greatly.

The market is looking at:

Is the acquisition price reasonable?
Is synergy really?
Is it too big
Is the borrowing burden not heavy?
Is it possible to integrate after acquisition?
Is it profitable for existing shareholders?

In particular, if a listed company announces a large acquisition, the market is wary that the acquisition audit is sweet.

Because if a problem occurs after the acquisition, it will lead to loss or loss of business performance.

How beginners can easily misunderstand

The acquisition ICOL is not always a plus

M&A is a growth strategy.

However, not all acquisitions succeed.

For reasons to fail,

Highみ
Synergy
Differences in culture
Human Resources Outflow
System integration failure
Loss

Yes.

The acquisition is a means of "buying growth", but at the same time, it is an act of buying risk.

It may be difficult to integrate than growth

M&A may be difficult to integrate after acquisition than the acquisition itself.

This is called PMI, Post Merger Integration.

PMI

Organizational Integration
HR system integration
System Integration
Customer Support
Brand ブランド
Duplicate Cost Reduction

The acquisition audit also leads to PMI preparation.

Finding a problem with DD makes it easier to plan integration after acquisition.

Good terms

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Noren is the difference between the acquisition price and the net asset value of the acquired company.

For example, if a company with a net asset of 100 billion yen was acquired by 1.5 billion yen, the difference is 50 billion yen.

It is the amount to pay by reflecting future profit and brand value.

However, if the expected profit does not come out, the loss may occur.

Synergy

Synergy is a synergy effect by integration.

For example:

Cost reduction
Expansion of sales network
Technology sharing
Improving purchase efficiency
Expanding customer base

Others

However, Synergy is very easy to see in the plan.

Investors should see if they are actually reflected in their interests.

Warranty

The warranty is a contract clause that guarantees certain facts about the seller.

For example:

No significant errors in financial information
No significant litigation
No problem with tax declaration
Important agreements are valid

It is

If a violation is found later, it may be subject to compensation claim.

Checkpoints for Investors

When you look at M&A news, you can easily understand the following:

Check items	Reasons to See
Acquisition price	Not a high-valueみ
EV/EBITDA/PER	Comparing with similar companies
Price	Is there a big risk of loss
資金調達	Is there a borrowing burden or di ?
Synergy	Is it described as a number?
PMI Plan	Is it possible to perform integration?
DD Results	Is there a serious risk?

What is important for investors is not the fancy of acquisition announcements.

Important

“Is it worth meeting the acquisition price?”

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The acquisition audit is "information investigation before acquisition"
called due diligence, DD
Financial, Legal, Tax, Human Resources, IT, and Business
If a problem is found, calculate the acquisition price and contract terms
Investors should see noren, synergy, PMI, acquisition price

In investment

What is really worth buying?

The point of view is important.

M&A is a powerful means of corporate growth, but the acquisition audit leads to sweet and significant losses.

出典

This article is for educational and informational purposes only, based on public information. It is not a recommendation or solicitation to buy or sell any specific security or financial product. Although care is taken with accuracy, the content and future investment outcomes are not guaranteed. Final investment decisions should be made at your own judgment and responsibility.