Due Diligence - an insight
waccoe.com 12/7/12
Dick Dastardly
I think people are underestimating just how complex and complicated, and certainly detailed Due Diligence (DD) is.
I work in Corporate Banking and its a pre-requisite for any takeover, acquisition, buy-out or investment. There are varying scales and it can take weeks, sometimes months. We all know Leeds United has a complicated company structure with numerous linked companies and departments/cost centres. There is likely to be inter-company trading and money moving about. They might have different financial year-ends too which makes assessing the Accounts nigh on impossible as money can be moved from one to another to massage the strength of the Balance Sheet. The interested party having got past Bates initial obstacles of 'show us your money' will ask to see the books. This is where the fun and games outlined above starts.
The interested party will have his own Accountants, Solicitors, Bankers. They will assess the Leeds United accounts and have lots of questions that only a proper DD would uncover. In the UK one of the large firms would be appointed (KPMG/Grant Thornton etc) but overseas investors might use their own preferred auditors. They have to agree upon a scope of the DD, remember Leeds are reported to have 17 separate companies/cost centres and many are overseas. You would expect and hope that financial prudency dictates that every aspect is thoroughly researched. The Scope is agreed and Engagement Letters have to be sent out and signed by all parties together with the Non Disclosure signatures. This binds all parties to their professional integrity. That alone can take up to 2 weeks.
The DD commences, every aspect of the clubs accounts/contracts/creditors/debtors/bank statements/salaries/liabilities/future liabilities etc are studied in detail. A complex DD can have dozens of highly paid, highly skilled auditors working on it and it can take 1-3 weeks, sometimes longer. When they finish they have to write up the reports and this can take 1-2 weeks. This is then fed back to all the parties. A clean DD is great, no further questions and the deal can proceed. However DD usually throws up problems, unforeseen, sometimes hidden away. That is what the Investor is paying for. DD is the time to identify all the skeletons and anything lurking away that will bite them on the bum in the future. Most issues are easily resolved, some can be show-stoppers. From my perspective (the bank) we could refuse to sanction the funds because we don't like what's been reported. This leads to renegotiation and offers changing. Its a fluid process but it all takes time. The Legal Paperwork has to drafted, and re-drafted until its correct and then has to be signed by all relevant parties. Again this can be a long drawn out saga. The point to all this is it takes time.
We don't know when this DD on Leeds Utd started but the comments last week were we believed it was further advanced than the club stated. This may be so but it could still be days or weeks even before things are tied up. I like everybody else is praying for a quick resolution so we can all move on from this mad-house. It cannot be healthy for any of us and the negativity and Leeds on Leeds is kicking in.
Finally remember Bates defied using DD to buy Leeds which was both impetuous and foolish as he found out, and too our cost we are still paying the price! I'm prepared to be patient, as long as it takes, to enable this deal to be done properly and correctly.
Sorry for the essay!
Dick Dastardly
I think people are underestimating just how complex and complicated, and certainly detailed Due Diligence (DD) is.
I work in Corporate Banking and its a pre-requisite for any takeover, acquisition, buy-out or investment. There are varying scales and it can take weeks, sometimes months. We all know Leeds United has a complicated company structure with numerous linked companies and departments/cost centres. There is likely to be inter-company trading and money moving about. They might have different financial year-ends too which makes assessing the Accounts nigh on impossible as money can be moved from one to another to massage the strength of the Balance Sheet. The interested party having got past Bates initial obstacles of 'show us your money' will ask to see the books. This is where the fun and games outlined above starts.
The interested party will have his own Accountants, Solicitors, Bankers. They will assess the Leeds United accounts and have lots of questions that only a proper DD would uncover. In the UK one of the large firms would be appointed (KPMG/Grant Thornton etc) but overseas investors might use their own preferred auditors. They have to agree upon a scope of the DD, remember Leeds are reported to have 17 separate companies/cost centres and many are overseas. You would expect and hope that financial prudency dictates that every aspect is thoroughly researched. The Scope is agreed and Engagement Letters have to be sent out and signed by all parties together with the Non Disclosure signatures. This binds all parties to their professional integrity. That alone can take up to 2 weeks.
The DD commences, every aspect of the clubs accounts/contracts/creditors/debtors/bank statements/salaries/liabilities/future liabilities etc are studied in detail. A complex DD can have dozens of highly paid, highly skilled auditors working on it and it can take 1-3 weeks, sometimes longer. When they finish they have to write up the reports and this can take 1-2 weeks. This is then fed back to all the parties. A clean DD is great, no further questions and the deal can proceed. However DD usually throws up problems, unforeseen, sometimes hidden away. That is what the Investor is paying for. DD is the time to identify all the skeletons and anything lurking away that will bite them on the bum in the future. Most issues are easily resolved, some can be show-stoppers. From my perspective (the bank) we could refuse to sanction the funds because we don't like what's been reported. This leads to renegotiation and offers changing. Its a fluid process but it all takes time. The Legal Paperwork has to drafted, and re-drafted until its correct and then has to be signed by all relevant parties. Again this can be a long drawn out saga. The point to all this is it takes time.
We don't know when this DD on Leeds Utd started but the comments last week were we believed it was further advanced than the club stated. This may be so but it could still be days or weeks even before things are tied up. I like everybody else is praying for a quick resolution so we can all move on from this mad-house. It cannot be healthy for any of us and the negativity and Leeds on Leeds is kicking in.
Finally remember Bates defied using DD to buy Leeds which was both impetuous and foolish as he found out, and too our cost we are still paying the price! I'm prepared to be patient, as long as it takes, to enable this deal to be done properly and correctly.
Sorry for the essay!