VAL CON

• T or F. Due diligence is an investigation, audit, or review performed to confirm the fallacies of a matter under consideration 


  False. Fact not fallacies
• Due diligence is an investigation, audit, or review performed to confirm the fallacies of a matter under consideration.
• In the financial world, due diligence requires an examination of legal records before entering into a proposed transaction with another party.
• Due diligence became common practice (and a common term) in the U.S with the passage of the Securities Act of 2000.
• Company Initiated/performed Due Diligence is due diligence performed by companies considering acquiring other companies as well as by equity research analysts, fund managers, broker-dealers, and individual investors.
• Individual Investor Initiated/performed Due Diligence due diligence by individual investors is voluntary, but broker-dealers are legally obligated to conduct due diligence on a security before selling it.
• Soft Due Diligence is concerned with the legal and financials of the company under evaluation.
• Soft Due Diligence - Soft due diligence is concerned with the people, within the company and in its customer base, which is qualitative and cannot be normally done by use of mathematical calculation.
• In traditional M&A activity, the acquiring firm deploys risk analysts who perform due diligence by studying costs, benefits, structures, assets, and liabilities, known colloquially as soft due diligence.
• M&A deals are also subject to the study of a company's culture, management, and other human elements, known as soft due diligence.
• Hard due diligence, which is driven by mathematics and legalities, acts as a counterbalance when the numbers are being manipulated or overemphasized.
• The due diligence process varies from institutions, companies or individuals doing the activity.
• Mergers and acquisitions (M&A) are defined as consolidation of companies.
• Mergers is the combination of two companies to form one, while Acquisitions is one company taken over by the other.
• The reasoning behind M&A generally given is that two separate companies together create more value compared to being on an individual stand.
• Merger or amalgamation may take two forms: merger through absorption or merger through consolidation.
• Mergers can also be classified into three types from an economic perspective depending on the business combinations, whether in the same industry or not, into horizontal (two firms are in the same industry), vertical (at different production stages or value chain) and conglomerate (unrelated industries).
• From a legal perspective, there are different types of mergers like short form merger, statutory merger, subsidiary merger and merger of equals.
• There is always synergy value created by the joining or merger of two companies.
• The synergy value can be seen either through the Revenues (higher revenues), Expenses (lowering of expenses) or the cost of capital (lowering of overall cost of capital).
• In an M&A transaction, the valuation process is conducted by the acquirer, as well as the target.
• The acquirer will want to purchase the target at the lowest price, while the target will want the highest price.