Financial Due Diligence commonly known as FDD is a crucial process in the M&A process and can be defined as an investigation that businesses or companies that are interested in mergers, acquisitions, and /or investments undertake. FDD entails assessments of a target firm’s financial documents, business results, and prospects. Following is a list of opportunities and threats associated with the execution of FDD in Thailand.
Advantages
- Accurate financial assessment: FDD helps the businesses and the companies to get an accurate picture of the financials of targeted companies accurately. This information is useful when making investment decisions, mergers and acquisitions among other related decisions.
- Identifies potential risks and opportunities: This means that for the consideration of the future performance of the target company, FDD makes it possible to determine any financial risks or opportunities that might exist. The purpose of completing this information is to determine if the potential acquisition or investment is feasible.
- Assures investors and stakeholders: When done properly, FDD process gives confidence to investors and stakeholders that a company’s book has been scrutinized financially and thus the unlikely hood of financial disparities come to realization after the agreements have been sealed.
- Helps with negotiation: The analysis of franchise’s FDD report can help to reach better deal structure during the signing of the agreement. The knowledge of the target company’s financial standing can also help in negotiations on issues to do with price and other factors.
Risks
- Cost and time: FDD is a very detail oriented process that takes a lot of time and is very expensive, furthermore it may stop a potential contract. But commonly, the benefits that may be derived out of it have been seen to outcompete the costs.
- Disruptions: While conducting FDD, the target company’s operations may be affected and some of the employees may have to spend time and resources in giving information or responding to questions.
- Confidentiality risks: The act of FDD encroaches on elements such as financial assets, and if compromised, lead to severe repercussions, such as the deterioration of the target firm’s image.
- Incomplete information: For that reason, while the research disclosed above can provide FDD reports shedding light on all financial threats and opportunities, some issues may still emerge after the deal has been sealed.
To minimize such risks, it is recommended to get assistance from competent FDD specialists who can perform the process quickly, keep the information secret, and prepare the list of all the financial threats and opportunities concerning the enterprise.
Financial Due Diligence is relevant when engaging in any mergers, acquisitions, and investments in Thailand. Businesses and companies gain objective and accurate results involving their financial status, get information on possible threats and possibilities, and assure investors and shareholders. Also, FDD has some disadvantages: cost, interruptions, violation of confidentiality, and lack of sufficient information. These risks can however be avoided by engaging the service of FDD professionals most of whom have vast experience in the field of FDD hence making it possible for businesses and companies to make right decisions that are anchored on sound and proper financial analysis.
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