Due Diligence in M&A Transaction: How SAP Helps Mitigate Risks

  • by Vivek Sadhale, Company Secretary & Head — Legal and Investor Relations
  • October 10, 2011
Due diligence is a key step during mergers and acquisitions (M&A). SAP offers four tools (SAP BusinessObjects Watchlist Security; SAP BusinessObjects Governance, Risk, and Compliance solutions; SAP BusinessObjects Access Control; and SAP StreamWork) to help you mitigate risk during the M&A transaction.
Key Concept
A merger and acquisition (M&A) process is intense and complex spanning various stages: exploratory, due diligence, agreement finalization, and closing. Although each stage in the transaction has its own importance, due diligence is the most critical step. The due diligence process confirms all material facts with regard to any transaction. This step identifies potential risks and issues, thus facilitating the preparation and negotiation of definitive agreements.

When you are conducting due diligence for proposed mergers and acquisitions (M&A), consider the following points:

  • Focus. When entering into due diligence, you must be clear about the objective. The objective must be clearly communicated and articulated to the due diligence team.
  • Materiality. Determining the appropriate level of the materiality threshold to be applied in conducting the due diligence ensures that the process is focused on the objectives and the identification of critical issues. You must determine what is reasonably likely to affect the value of what is being sold or acquired. Common sense, not just predetermined figures, should prevail.
  • Confidentiality. Before the acquirer gains access to any material information, the target company usually requires some sort of confidentiality agreement from the people involved in the due diligence, especially those who have access to confidential information. This nondisclosure confidentiality agreement should permit full discussion and advice of confidential information between an acquirer and the entire due diligence team, including outside consultants.
  • Logistics. It is common in a large due diligence process for an acquirer to have its own employees, together with advisors and other specialists, conducting a review. It is important that systems are in place to ensure that the entire process is coordinated and remains focused on the acquirer’s objectives. Nowadays, a virtual data room is commonly used for due diligence. A virtual data room is an online repository or library used for the storing and distribution of documents to facilitate the due diligence process during M&A transactions. A virtual data room saves time and money in the entire due diligence process.

Technological Tools

M&A transactions are complex, especially when companies deal with cross-border M&As, mainly owing to geographic diversity and the generation of huge amounts of data. Thus, it may not be possible to conduct a thorough and proper due diligence manually. Technological tools enable accurate, efficient, and effective results. They also provide necessary flexibility for the teams working on it. With the advent of cloud technology, the cost of these tools should come down as well, making them even more cost-effective.

Acquirers use the following SAP tools to facilitate the due diligence process:

  • SAP BusinessObjects Watchlist Security: SAP BusinessObjects Watchlist Security helps to match internal company databases against government watchlists that help to uncover suspect transactions and noncompliance at the target company’s end.
  • SAP BusinessObjects Governance, Risk, and Compliance (GRC): The SAP BusinessObjects GRC solutions help the acquirer develop a preventive, real-time approach to governance, risk, and compliance. The analysis helps the acquirer to decide whether to proceed with the transaction after analyzing the risks highlighted by this solution, and looking into the governance and compliance level of the target company.
  • SAP BusinessObjects Risk Management: The SAP BusinessObjects Risk Management application provides a framework for enterprise risk identification, collaborative risk analysis, predefined risk responses, and risk monitoring and reporting.
  • SAP Environment, Health, and Safety (EHS) Management: The SAP EHS Management application streamlines all activities necessary to implement health and safety processes safely, effectively, and in accordance with laws and regulations. SAP EHS Management helps manage product safety specifications, hazardous substance inventories, and risk calculation.
  • SAP BusinessObjects Access Control: The SAP BusinessObjects Access Control application helps heads of compliance, IT security, and auditing confidently manage and reduce access risk across the enterprise. The software helps to prevent unauthorized access and achieve real-time visibility to access risk, while minimizing the time and cost of access management and compliance.
  • SAP StreamWork: SAP StreamWork helps to unite information and methods to drive swift, collaborative, informed decision making. SAP StreamWork also helps the acquirer to brainstorm, structure discussions, and build consensus on the transaction under consideration.

Vivek Sadhale

Vivek Sadhale is a company secretary and head — legal and investor relations of Persistent Systems Ltd., one of the leading outsourced software product development companies with a turnover of about US$127 million and more than 5,500 employees. He has 14 years of hands-on experience in corporate secretarial, corporate governance, investor relations, mergers and acquisitions, capital market transactions, and international legal matters, with exposure to management accounting, finance, and treasury functions within reputed Indian and multinational organizations. A commerce and law graduate, Vivek completed his chartered secretaryship exam in the UK and is a qualified company secretary and management accountant in India.

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