Handbook of Business Valuation

By Thomas L. West; Jeffrey D. Jones | Go to book overview

CHAPTER FIVE
The Investment Banker's
Perspective on Due Diligence
for Mergers, Acquisitions,
and Securities Offerings

RICHARD HOULIHAN

D. GREY MERRYMAN

It has been stated that due diligence is the absence of negligence. However, a securities offering, acquisition, or merger (a “transaction”) is of such significant and major importance that the responsible reviewing investment banker(s) must know exactly what he or she is doing and follow a carefully laid-out plan of attack when performing a transaction review. Louis Pasteur said that, “Chance favors the prepared mind.” Similarly, a well-prepared transaction review can decidedly tilt the odds in favor of a successful win-win transaction for both the informed buyer and seller, or the company and its new investors.

In the real world, transactions, or “deals,” often are made, or “structured,” between a prospective buyer and seller or between an issuing company and its investment banker based upon preliminary information, concepts, and plans, leaving the details of the deal to be put together by the attorney and the investment banker. Generally the attorney will assemble the necessary legal documents and provide for the required filings, but is not typically in a position to give a wellinformed opinion as to the financial and operating advantages and disadvantages of the deal. The key responsibility for researching a potential transaction and the synthesis of a business judgment as to the validity of a deal and the structure generally falls on the broad shoulders of the investment banker of the acquiring entity or the lead underwriter of an offering.

In some smaller acquisitions, in order to conserve funds, an investment banker may represent both the buyer and the seller, but legal cau

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