Real Estate Services - Acquisitions / Due Diligence

Recently, Warren Buffet made a $5 Billion investment in Goldman Sachs, and another huge investment in General Electric (GE). The media noted what savvy investments Mr. Buffet had made, and on the surface, it certainly looks like Mr. Buffet's track record may be further enhanced by these deals. We are sure Mr. Buffet has investment advisors, accountants, analysts and consultants to ensure he knows what he is buying. But given the timeframe involved isn't it fair to ask, "How much due diligence did Mr. Buffet really do?"

Now, obviously both of these companies are household names and in the top echelon of their respective fields, which for GE is rather broad. So maybe Mr. Buffet didn't feel the need to do much detail due diligence work. Mr. Buffet is renown for being a leader and for making decisions quickly based on his "gut feel". Maybe with the pricing so low and the guaranteed returns Mr. Buffet felt that the risk was more than justified by the potential return and that detailed due diligence wasn't needed? Maybe he did it to help the Country and reestablish confidence in the financial system? Hard to say because we don’t really know.

But here is what we do know about due diligence. Our Top 10 List (minus one)!

1. We have seen many acquisitions made with minimal or no due diligence work. 
2. Management will often say that they have completed a due diligence investigation, but in many cases they really only completed a cursory review. 
3. Many times top management promoting an acquisition to their superiors end up losing their positions afterward due to false expectations. 
4. Operating managers rarely understand how and what due diligence to do, even though they often say the opposite. 
5. Defensive acquisitions (made to prevent a competitor from consummating the acquisition) rarely succeed. 
6. Two bad's seldom result in one good. Can you say, GM and Chrysler?
7. Corporate cultures do in fact matter. 
8. Hoped for synergies do not just occur, they must be carefully orchestrated. 
9. Investment bankers, to the extent there are any left, can provide valuable assistance in identifying acquisition targets, pricing deals, facilitating negotiations, etc.., but in our opinion they are not well suited to lead due diligence work, which in reality is somewhat mundane.  

We can simply assist you in developing and monitoring a due diligence plan. We can also manage the entire process with your people or ours. Finally, we can help you determine how to best integrate your acquisition with your existing operations and prepare or assist with a business plan for after the acquisition, which would include projections for both cash flow and net income for your acquisition. We can help you identify and summarize future risks and opportunities.

Professionals from The Wheatfield Group were setting up "war rooms" in the 80's and 90's when the MBA's from your investment banker and public accounting firm were playing with their Ninja Turtle dolls. Your operating management needs to be integrally involved because they will be managing the acquisition afterward, but they are typically not well suited to lead the process, which in most cases they have never been involved with. Why take a chance? Hire the professionals from The Wheatfield Group who have been involved with acquisitions of all sizes and shapes for many types of companies and real estate assets.  

Types of Projects

• Review purchase agreements.
• Review financing documents.
• Meet with top management to address their goals for the acquisition and their concerns and objectives for the acquisition and their concerns and objections for the acquisition due diligence process.
• Meet with operating management to address their needs and concerns.
• Prepare or assist with due diligence plan, including goals, timing, personnel needs, work plans, document needs, outputs, etc.
• Participate in discussions regarding best approach to assimilate acquired company; centralized versus decentralized.
• Review or prepare detail information request list with delivery dates.
• Receive, copy, review, log and distribute due diligence information.
• Coordinate legal document review for loan agreements, leases, union agreements, employment contracts, employee policy manuals, sales contracts, long-term vendor agreements, advertising and promotional agreements, lawsuits and claims, etc.
• Coordinate financial review of business plans, budgets, financial statements by division, staffing and compensation levels, tax returns, liabilities, etc.
• Conduct meetings with top and operating management.

For Operating Businesses

• Review sales and operating information by month and by customer.
• Review and consider inventory levels in light of sales.
• Analyze pricing and price changes.
• Review industry sales trends.

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