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How can you ensure all parties are aligned during Corporate Finance due diligence?

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Due diligence is a critical process in corporate finance, as it involves verifying the information, assumptions, and risks of a potential deal. However, due diligence can also be a source of conflict and misalignment among the parties involved, such as the buyer, the seller, the advisors, and the lenders. How can you ensure that all parties are aligned during corporate finance due diligence? Here are some tips to help you achieve a smooth and successful deal execution.

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Roger Jose

Rotman MBA Candidate | CPA | FP&A
Ardak Kaliyeva

Investments | Innovations | Corporate Finance

1 Define the scope and objectives

The first step to align the parties is to define the scope and objectives of the due diligence. This means clarifying what information is needed, why it is relevant, and how it will be used to evaluate the deal. The scope and objectives should be agreed upon by all parties and documented in a due diligence request list or a letter of intent. This will help avoid unnecessary or redundant requests, as well as set clear expectations and timelines.

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Roger Jose

Rotman MBA Candidate | CPA | FP&A
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This alignment between all parties is critical and the tone has to be set at the top. It is also equally important that leaders communicate the agreed terms of engagement to their respective teams and facilitate collaboration between the parties. DD exercises usually have very tight deadlines and all parties must be aligned from the start. It is good to designate a project head for coordination and resolving bottlenecks.

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2 Communicate and collaborate

The second step to align the parties is to communicate and collaborate effectively throughout the due diligence process. This means establishing regular and transparent communication channels, such as meetings, calls, emails, or online platforms, where the parties can exchange information, ask questions, and provide feedback. Communication and collaboration should also involve resolving any issues or disputes that may arise, such as data quality, valuation, or deal terms. The parties should aim to build trust and rapport, as well as to address any concerns or risks promptly.

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3 Manage the stakeholders

The third step to align the parties is to manage the stakeholders involved in the due diligence process. This means identifying who are the key decision-makers, influencers, and gatekeepers for each party, and understanding their interests, expectations, and motivations. Managing the stakeholders also means engaging them in the due diligence process, such as by providing them with updates, insights, or recommendations, and soliciting their feedback or approval. The parties should also anticipate and mitigate any potential resistance or objections from the stakeholders, such as by providing evidence, rationale, or incentives.

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Ardak Kaliyeva

Investments | Innovations | Corporate Finance
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Considering the interests of all stakeholders is the best approach to ensure that no one's concerns are overlooked during due diligence. Each stakeholder has distinct interests, goals, communication paths, and influence. A practical strategy is to identify common fields applicable to all stakeholders (such as communication, reporting, goals, etc.). Then provide specific details and audit these fields for each group of stakeholders during due diligence.

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4 Leverage the advisors

The fourth step to align the parties is to leverage the advisors who can assist in the due diligence process. These may include lawyers, accountants, consultants, or bankers, who can provide expertise, guidance, or support in various aspects of the deal, such as legal, financial, operational, or strategic. The parties should select and engage the advisors who have relevant experience, reputation, and relationships in the industry or market. The parties should also coordinate and align the advisors with their own objectives and expectations, and ensure that they deliver quality and timely work.

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5 Validate the assumptions

The fifth step to align the parties is to validate the assumptions that underpin the deal. These may include assumptions about the market, the industry, the company, the synergies, or the risks. The parties should use the information gathered from the due diligence to test and verify the assumptions, and to adjust them if necessary. The parties should also share and compare their assumptions with each other, and to reconcile any differences or gaps. The parties should aim to reach a consensus on the assumptions that reflect the reality and the value of the deal.

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6 Negotiate the terms

The sixth and final step to align the parties is to negotiate the terms of the deal. This means translating the findings and conclusions from the due diligence into the deal structure, price, and conditions. The parties should negotiate in good faith, respect, and fairness, and to seek a win-win outcome that satisfies their interests and goals. The parties should also document and formalize the terms of the deal in a definitive agreement, and to ensure that it reflects the due diligence results and assumptions.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you ensure all parties are aligned during Corporate Finance due diligence?

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1 Define the scope and objectives

2 Communicate and collaborate

3 Manage the stakeholders

4 Leverage the advisors

5 Validate the assumptions

6 Negotiate the terms

7 Here’s what else to consider

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