Friday 28 April 2017
The process of due diligence, which forms a crucial part of all significant business deals, involves a detailed analysis of the person or company that you are considering forming a relationship with. A private investigation service, like that provided by Eclipse Legal Service, is a necessity for many types of business deals or mergers and we can help you whether your company is small and growing or large and established.
Completing the process properly will help to ensure that the deal goes through smoothly and that no significant issues arise following its completion. Failure to properly undertake due diligence, conversely, can result in real problems, as the examples from these well-known multinationals set out below clearly demonstrate.
In 1994, the German automobile giant, BMW, purchased the British car manufacturer, Rover, for £800 million. The deal was completed in only ten days, which was clearly insufficient time for BMW to carry out a comprehensive due diligence. Had they done so, they would have discovered that the financial data that Rover had provided, particularly relating to its sales, was inaccurate. As a result, BMW paid an inflated price and, when the business was quickly sold on, suffered substantial losses. Had they carried out their due diligence properly they could have negotiated a lower price, agreed to buy only the most profitable limbs of the Rover business or pulled out altogether.
In 2005, News Corporation acquired MySpace in an attempt to capture a share of the growing social media market. In doing so, it beat a competing bid by Viacom. In their haste to win the race to acquire MySpace, the executives of News Corporation failed to carry out a thorough due diligence, resulting in a company for which they paid $600 million being sold for only $35 million six years later.
In the autumn of 1998 Mattel, an established toy maker, agreed to the $3.6 billion acquisition of The Learning Company, an educational software business. Inadequate attention to due diligence, particularly regarding its own sales predictions, meant that The Learning Company immediately caused Mattel to suffer huge losses. It was sold in 2000 for less than one-tenth of the purchase price that Mattel had paid.
In 2011, computer multinational, Hewlett-Packard, purchased a UK based software corporation, Autonomy, for $11 billion. Unfortunately, during the process, a lack of proper due diligence led to the oversight of a substantial number of financial statements, cash flow reports and balance sheets. As a consequence, within only a year Hewlett Packard had to write off $8.8 billion of Autonomy’s value and was later sued for negligence by its own share holders.
In late 1994, Quaker acquired the soft drinks company, Snapple at a cost of $1.7 billion. In what has been described as a classic failure to perform due diligence and one of the worst corporate merger fiascos in history, Quaker went on to lose around $1.6 million for every day that it owned Snapple, until it was sold for only $300 million after just two years.
All of these cases highlight just how important it is to complete a thorough due diligence when considering a major business deal. Entering into a major commercial transaction without a comprehensive investigation into the true financial and business position of who you are dealing with can result in significant losses, staff redundancies, selling assets at a loss and, in the worst case scenario, the death of your organisation. For more information about how we can help you and your business contact us today for advice and a quote.