MERGERS AND ACQUISITIONS: PRE-ACQUISITION INVESTIGATIVE DUE DILIGENCE BDO Consulting
MERGERS AND ACQUISITIONS: PRE-ACQUISITION INVESTIGATIVE DUE DILIGENCE BDO Consulting December 1, 2009 1 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence CPE and Support • CPE Participation Requirements – To receive CPE credit for this Webcast: – You’ll need to actively participate throughout the program. – Respond to all participation pop-ups. • Certificate of Attendance – If you are logged in the entire time and respond to all pop-up, you will be able to print your certificate from the “Support” section at the end of the webcast. • If you log out before printing your certificate, you will be emailed instructions on how to access your certificate. 2 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence CPE and Support • Q&A – Submit all questions using the Q&A feature on the lower right corner of the screen. At the end of the presentation, the presenter(s) will review and answer all questions submitted. • Technical Support - If you should have technical issues, please contact LearnLive: – Call: 1-888-228-4188 – EXIT by using the Red EXIT button – don’t just close the browser window 3 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Webcast Overview Agenda I. Introduction II. Investigative Due Diligence (IDD) III. Essential Elements of IDD IV. Sources of Information V. Due Diligence Checklist VI. Legal Due Diligence VII. Types of Risk VIII. Third-Party Vendors and IDD IX. Benefits of IDD X. International IDD XI. Conclusion/Q&A 4 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Introduction “Pre-acquisition due diligence should be constructed to give as good an insight as possible into post-deal implementation as to isolating pre-deal risks.”* *Due Diligence: The Critical Stage in Mergers and Acquisitions by Peter Howson 5 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Investigative Due Diligence (IDD) What Is It? • Investigative Due Diligence is a broad concept involving an in-depth pre-deal review of transactions, principals and key players. – Specific needs drive an array of services involving overt and covert field operatives. – Initial evaluations often yield the most successful, cost-efficient results. 8 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Legal Due Diligence Impact on Investment • Businesses and individuals seeking investment opportunities can be self-promoters. • In-depth background information about individuals within and behind an entity is important. • These problems may be serious enough to signal a need for further inquiry. • Identify and address pre-existing issues (legal or otherwise) or poor business practices. 17 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Third-Party Vendors and IDD FCPA IDD on Third Parties • Conduct IDD with respect to a target company’s agents and business partners and keep accurate records of your IDD efforts. • Determine the extent of international sales in high-risk countries. • Review the amounts of retainers, commissions and expenses paid to agents (the reasonableness factor). • Determine which major anti-bribery and anti-corruption laws are applicable. • Interview relevant employees, agents, distributors, customers. • Investigate allegations of suspicious payments to government officials. 20 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Benefits of IDD Where is the Value? • Decision-makers who increasingly rely on IDD in their evaluation of: – Business investments – Mergers and Acquisitions (stock deals and asset purchases) – Joint ventures/partnership arrangements – Board appointments – Customer, contractor and vendor relationships – Executive and key employee hires 22 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. International IDD What Is It? • International due diligence typically covers the business ethics and practices of a company, its principals, economic and political standing in the business community, its relationships with government and government agencies, any sign of financial or tax difficulties, past or current civil or criminal/legal problems and any evidence of bribery or corruption. • Selected foreign media, etc. can be accessed via commercial databases available; however, the actual work must take place locally. • Rules that govern access to information and records outside the United States is often more restrictive and differs from country to country. 24 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Conclusion • It is imperative to have all the information available before a decision is rendered. • Investigative due diligence provides you with the necessary tools to make an informed business decision. 27 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Contacts Mr. Katz is a Partner in BDO Consulting, a division of BDO Seidman, LLP, and the Practice Area Leader for Post-Acquisition Dispute Resolution Services and Economic Damages. He has twenty two years of experience providing forensic accounting and litigation consulting services to attorneys, businesses and individuals. Mr. Katz analyzes financial issues, prepares damage analyses, designs court exhibits, provides testimony at trial or deposition and serves as a neutral arbitrator. Mr. Katz’s experience includes serving as an arbitrator, consultant and expert witness in post-acquisition disputes. His work in those matters includes the analysis and interpretation of acquisition agreements, evaluation of claims for breaches of representations and warranties and allegations of bad faith, as well as the application of Generally Accepted Accounting Principles (GAAP). As a consultant and expert witness in lost profit matters, Mr. Katz’s experience includes, determining damages in cases involving breaches of contract, the improper hiring of employees, business torts and employee disputes. His other work involves forensic accounting analyses, investigation of allegations of fraud and business valuation. Jeffery M. Katz, CPA/ABV, CFE Partner BDO Consulting New York, NY [email protected] 212-515-8302 A Certified Public Accountant, a Certified Fraud Examiner and Certified in Financial Forensics, Mr. Katz has provided opinion testimony on numerous occasions, including before the United States Bankruptcy Court, Delaware Chancery Court, New Jersey Superior Court, the American Arbitration Association, the National Association of Securities Dealers and JAMS. He has also testified before the New York Supreme Court and has served as the arbitrator in private arbitrations. Accredited in Business Valuation from the American Institute of Certified Public Accountants, Mr. Katz has presented on valuation issues to professional societies, on fraud issues related to investigations at hedge fund conferences and to the United States Securities and Exchange Commission and to various organizations on stock-option backdating. Mr. Katz has also published articles on key issues within the post-acquisition dispute Education BS, Accounting and Economics Professional Affiliations American Institute of Certified Public Accountants New Jersey Society of Certified Public Accountants Association of Certified Fraud Examiners American Bar Association 28 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Contacts Neil F. Moran is a Managing Director in BDO Consulting, a division of BDO Seidman, LLP, in the New York office. He has more than 35 years of experience in the private sector and FBI, and leads the firm’s Investigative Due Diligence practice. Previously in his career, as a Special Agent, Undercover Coordinator and Supervisory Special Agent in the FBI’s largest field office in New York City, Mr. Moran was actively involved in investigations concerning sophisticated art thefts, truck hijackings, organized crime, terrorism, insurance/mail fraud, money laundering, international auto theft rings, federal civil rights violations and labor racketeering. Notably, in 1993, Mr. Moran was awarded the FBI Shield of Bravery and the FBI Star by the Director of the FBI, in connection with his actions while arresting members of a truck hijacking ring. At BDO Consulting, Mr. Moran conducts investigations involving misappropriation and embezzlement, money laundering, mortgage fraud, bank fraud, securities fraud, product liability, industrial espionage, copyright/trademark infringement, bond claims, employee misconduct and corporate internal investigations. Neil F. Moran Managing Director BDO Consulting New York, NY [email protected] 212-885-7416 Mr. Moran has extensive experience testifying before state and federal grand juries, federal criminal court and New York State criminal court. While at the FBI, he frequently lectured and provided instruction on sensitive operations and investigative development. He is also a former Adjunct Professor at St. John’s University in the College of Professional and Legal Studies. Education BA, Niagara University Professional Affiliations FBI Agents Association Society of Former FBI Agents St. John’s University Criminal Justice Advisory Council Association of Certified Fraud Examiners U.S. Marine Corps Law Enforcement Foundation NYPD Honor Legion American Bar Association – Associate Member 29 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Contacts Robert M. Weiner is a Director at BDO Consulting, a division of BDO Seidman, LLP, in the New York office where he focuses on international investigations and investigative due diligence. Mr. Weiner’s experience includes the supervision of international due diligence assignments and FCPA investigations throughout the world, employee misconduct, securities fraud, money laundering, kickback schemes and counterfeit goods. He has led large scale criminal and white collar financial investigations for Fortune 500 corporations, banking/financial institutions and law firms. Mr. Weiner developed internal compliance programs to conform to federal regulations including, FCPA, Sarbanes-Oxley, Bank Secrecy Act, Know Your Customer Requirements and USA Patriot Act. In addition, he designed and implemented a comprehensive mortgage fraud and prevention program for a national title insurance company. Throughout Mr. Weiner’s career, he has been involved in numerous investigative and fact gathering assignments, due diligence reporting, compliance programs and litigation support. His experience also includes conducting legal and transactional due diligence and coordinating financial due diligence for domestic and cross-border M&A transactions while practicing law. Robert M. Weiner, JD, CIPP Director BDO Consulting New York, NY [email protected] 212-515-5479 30 Education JD, Environmental Law, Pace University School of Law BA With Distinction, Pace University Certified Information Privacy Professional Professional Affiliations American Corporate Counsel Association New York City Bar Association New York City Criminal Bar Association Connecticut Bar Association Association of Certified Fraud Examiners International Association of Privacy Professionals BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Q&A 31 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence BDO SEIDMAN, LLP • BDO Seidman, LLP is a national professional services firm providing assurance, tax, and consulting services to a wide range of publicly traded and privately held companies and not-for-profits. • Guided by core values of integrity, trust, professionalism, independence, and service for almost 100 years, BDO has provided quality service and leadership through the active involvement of our most experienced and committed professionals. 32 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence BDO CONSULTING • BDO Consulting combines investigative, technical, and industry resources to respond to suspected fraud, irregularities, and workplace incidents. • The diversity and depth of our investigative capabilities enables our professionals to approach each matter with a focus on the specific tasks that yield informative results in a timely manner. 33 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence BDO CONSULTING Investigative Due Diligence • We offer clients high-level professional advice, unlike the routine background screens or reports of raw data available elsewhere • Our comprehensive approach to investigative due diligence leverages the extensive experience and varied backgrounds of our professionals • We determine the necessary scope of our due diligence research and provide clients with the most meaningful information available, alerting clients to risks, disclosure issues and potential negotiation points. 34 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence BDO CONSULTING Investigative Due Diligence Pre-Transaction Services • Discover, verify and analyze information to alert clients to potential risks and advise on their mitigation through a comprehensive process of in-depth background checks, interviews and detailed analyses. • Conduct proactive due diligence on the individuals or entities with which they do business can help expose and mitigate hidden risks. • Assist financial institutions, private equity firms, hedge funds, institutional investors, high-net worth individual investors and their legal counsel in identifying and avoiding risks by exposing the concealed elements of prospective transactions and relationships. Accounting Due Diligence • Assist clients by analyzing financial reporting issues, conducting reviews for accounting compliance and conducting collateral audits/confirmations. • Perform forensic accounting reviews (e.g., Foreign Corrupt Practices Act, computer forensics). • Assist clients by performing reviews of federal, state, local and international taxes. 35 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence BDO CONSULTING Investigative Due Diligence Financial Due Diligence • Provide financial and operational due diligence services to assist buyers, investors or lenders in assessing a target organization's business transactions. • Perform due diligence for lenders on asset-based loans, quality of earnings analyses and cash flow analyses. • Investigate events and conditions that may affect an organization and help identify “soft spots” and potential issues that may impact deal negotiations (e.g., deal structure, terms of purchase agreement). • Focus on the early identification of hidden problems that could be "deal breakers" as well as pinpointing underperforming assets or areas where strategic/operational improvement could increase profitability. Post-Transaction Services - Business Integration Services • Assist clients with business integration services including identifying cost-reduction and profit-improvement opportunities, conducting fraud risk assessments or implementing an effective anti-fraud program. • Organizational redesigns to eliminate redundant functions, controls and positions, as well as consult on process flow redesign and technology integration. 36 BDO Consulting | Mergers and Acquisitions Pre-Acquisition Investigative Due Diligence Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients. Service Rules sm We built BDO Consulting by consistently delivering superior client service. Want proof? Ask our clients.
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