Due Diligence is very important to the success of any Acquisition process. Specially it become more important when the assets is distress. The valuation is really based on two factors, Assets and Knowledge and Intangible of the company and how these can be used to make future revenue. This presentation will provide you with brief on how to manage due diligence and Valuation.

1. DUE DILIGENCE AND VALUATION
OF DISTRESS ASSESTS
zia@ventureart.biz

2. Agenda
OBJECTIVE
DUE DILIGENCE
VALUATION
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

3. The Objective
Distress Asserts analysis and Due Diligence
 Tracking the changes what made the assets distress
 Complete due diligence of on present status of
• Financial
• Legal
• HR
• And other administration, licensing and commitments
 Present value of underline assets
 Synergy and Strategy for value creation
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

4. DUE DILIGENCE
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

5. What is DUE DILIGENCE
Analysis and appraisal of an entity in preparation for establishing a relationship with that entity
which involves business risks
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

6. Not an AUDIT!
DUE DILIGNCE AUDIT
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

7. Focus Depends On Situation
Collation of
Information
Commentary on
Prospects
Changing Emphasis
Vendors Report
Floatation's & IPO Corporate
Acquisitions
Corporate recovery
Investigation
Eg. For lending banks
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

8. Making DUE DILIGENCE Effective
Integrated Financial &
Commercial Due Diligence
Financial assessment Tax
review – Direct/ Indirect
Commercial assessment of
markets, Managements,
Operations, IT , Potential,
Synergies, Pension etc.
Management Merchant
bankers, Lawyers and
other advisors
Due Diligence
Deliverables
Due Diligence
Deliverables
Post Acquisition
plans
Pricing Issues Strategic Fit
Improvement
Opportunities
Key post
acquisition
action
CAPEX needs Funding Issues
Warranty &
Contract Issues
Strategy Test Identification & Evaluation
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

9. Types Of DUE DELIGENCE
• The business plus historic/
prospective financials
FINANCIAL
• Commercial/ Operational/
Environmental
• Product Analysis, Competitor
analysis, barriers to entry,
facilities, supply chain, capex
needs
• Plant Efficiency
• Contracts, Pensions & Mobility of
Labor
SPECIALIST
• Litigation, key contracts, regulatory
aspects, title to property, direct and
indirect tax
TAX
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

10. Due Diligence Coverage
Typical Areas Covered
History of the Business
Management & Employees
Accounting records & IT Systems
External environment & Strategy
Markets & Marketing/ Production/
R&D
Financial Statements
Business prospects
Taxation
Other areas that could be checked
Corporate Governance
Conflict of interest checked
Guidance on accountants report
International/ Firm wide requirement
Fee arrangements
Confidentiality agreements
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

11. PreparationofMemorandum
Accounts
Verification &
Valuation of all assets
Record any
adjustments to the
assets
e.g. Packing materials
and certain fixed
assets of the targets
not useable by the
acquirer
Ascertainment and
Identification of
liabilities
DUE DILIGENCE & Impact
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

12. Financial
 Details analysis of liabilities – current, short term and long term, mortgage
and guarantees against them present values
 Tracking changes on the liabilities over the last three years
 Ageing analysis and litigation if any
 Hidden cost
 Who – What – When- and How
 Value in the underline assets and the analysis if the owners
Financial Liabilities
 Assets , changes in the assets in the last three years, effect on financial assets
and its reclassifications
 Current assets, Fixed assets and other assets and goodwill, present value,
changes and analysis
 Mortgage and loans against assets or any other liabilities
 Receivable, Inventory, ageing report and valuations
 Tracking changes on every assets and where is lost value and y how much in
the last three years
Financial Assets
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

13. Financial
 What is the income and from where it is coming and efficiencies
 Real value of income – operating g
 Really value of financial income and investments and value lost in financial
assets
 Other income – realized and un realized, present status and value
Financial Income Statement
 Cash flow analysis of last three years and tracking where money is gone
 Where cash burnt and who burnt it and how much is remaining
 Understanding the value matrices of the company from cash flow statement
and it is which can provide real insight into the affairs of the company
Financial Cash Flow
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

14. Legal
BOT and Land
agreement
Agreements with
Lender and Banks
Agreements with
contractors
Agreement with
supplier and vendors
Agreement with HR
Liabilities arising out
of agreements
Under litigation
matter
Note on every legal
documents and its
legal status and
strongness
Value Underline
The reason is to get what is worth to acquire the company at present
market conditions and what should be the value drivers of the
company
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

15. • Audit Report 3 years minimum
• Fixed assets details for all subsidiaries
• Photocopies of invoices and bank debit advise for
all major assets purchased
• Management report YTD with all casuals
• Bank statement for year for the last 3 years
• Movement in the investment at fair value through
Income Statement last three years
• Movements in the investments available for the
sale last three years
• Due date of payable with the party names and
amount
• Details of the creditors for last three years with all
supporting documents
Requirements
Requirement for the Due Diligence Documents
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

16. Liability Documentation
Company
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

17. Work In Progress Due Diligence
• This should include Monthly progress from zero
level till date
• Also includes the important stages, payment and
cost and time over run and reasons
• Administrations and other expenses should be
quarterly
• This is quarterly analysis of expenses on
projected and actual basis along with variance
• Any other cost or expense which has not been
covered other sheets and incurred during
project execution
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

18. VALUATION
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

19. Understanding Valuation
Business is worth what a buyer will pay for it
• Like beauty, value is in the eye of the beholder and this
is critical to understand valuation
• The value of business is a function of the business logic
• Actual valuation is based on bargaining powers of
buyers and sellers
• Value of business is dynamic and not static
Cash Flow
(earnings)
based
Market
based
Assets
based
Valuation of Distress Assets
• The straight method of valuation will
not work for distress asset sale and
different methodology based on the
multiple criteria is required to value
distress
• Distress level of the sellers
• Assets valuation
• Liability valuations
• Work in progress valuation
• Cash flow, operating income valuation
• Market based benchmarks and entity
valuations as whole
All valuation require proper understanding of
the business and the companies. This is the key
to good evaluation
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

20. Valuation Approach
Why different methods
Key factors for CASH FLOW projections
 In distress assets the value of assets and its future earning capacity along with the synergy is important
but more important contract, legal status and how best it can come out of distress and at what price,.
This is the basic reason why it is required to use multiple approach to valuing g a distress assets
 Projected revenue and costs
 Projected capital costs
 No: of years for projections
 Discount Rate
 Opportunity cost
 Acquirer’s WACC
 Acquired company WACC
 Terminal Value
 Could be marginal / nil for some knowledge based and high
technology business
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

21. VALUATION APPROACH
CHALLENGES IN CAH FLOW PROJECTIONS
justifying the top line growth rates esp. for the start up / nascent
companies
Projections are made on “as-is” assumption (differentiator,
competitors etc.)which changes overnight in knowledge-based
industries
Projecting future capital costs especially for the new
technologies
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552

22. 22
Thank You!
Dr. Zia Ahmed
zia@ventureart.biz
+965 65510448
Contact Us
Email : zia@ventureart.biz
Whatsapp : +965 67086552