FINANCIAL DUE DILIGENCE IN MERGERS AND ACQUISITIONS TRANSACTIONS

Abstract

The development of companies and the increase of shareholder value are strategic goals of managers, and mergers and acquisitions have become a key instrument of inorganic business growth, involving the purchase of a company or a significant part of it with the transfer of corporate control. A merger is the combination of two or more companies in which the assets and liabilities of the seller are absorbed by the buyer [1]. Although the structure of the buyer's company may change significantly after the merger, it still retains its initial identity. Acquisition is the purchase of an asset, such as a plant, a division, or even the entire company [2]. According to P. Gaughan, despite their differences, the terms "merger" and "acquisition" are used interchangeably in practice. Despite the lack of clear evidence of shareholder value creation for the acquiring company [3; 4] and the presence of studies confirming value destruction due to M&A [5], globally, there are about 40,000 transactions annually [6], and this level mostly continues to rise, experiencing some fluctuations only during crisis periods. P. Haspeslagh and D. Jemison note that the failure of some transactions can be traced back to mistakes made during the pre-deal phase [7]. During the planning stage of M&A transactions, the investor is interested in obtaining objective and unbiased information about the actual financial position of the enterprise, as well as all risks associated with the purchase (acquisition) of the investment object. The most effective tool for investigating a company's activities is due diligence – an independent assessment procedure of the investment object, aimed at reducing risks in acquiring companies. Therefore, further development of approaches and tools of the pre-investment stage of the M&A process is important both theoretically and practically.