CASE STUDY

ADVENT LIMITED &

POURSHINS LIMITED
DUE DILIGENCE
Bhakti Gurung
Deepa Tajhya
Madhuri Thapa

Case Overview
O Advent Limited (an Indian BPO) was

keen on taking over Pourshins

Limited (UK Company with American
management) so that it could
conveniently expand its operations
in the UK and Europe.
O Advent is looking for a detailed
analysis of the target, its key clients,
capabilities and analysis of support
functions i.e. due diligence.

What is Due Diligence?

O Investigation of a business or person

prior to signing a contract, or an act

with a certain standard of care.
O Legal obligation, but more commonly

apply to voluntary investigations.

What is Due Diligence?

O Finance-

the process of research and

analysis that takes place in advance of an
acquisition,
investment,
business
partnership or bank loan
O Banking Industry- the responsibility of bank
directors and officers to act in a sensible
manner in evaluating credit applications
O Securities market- the responsibility of
underwriters to explain the details of new
securities to interested purchasers

Need for Due Diligence

O Identify the Strengths and weaknesses

of the business
O To give a fair value of the investment
O Helps in identifying the apparent

irregularities
O Tool of ensuring that the prevailing

system of checks works

Transactions requiring due

diligence
O Mergers and acquisitions
O Partnership
O Joint ventures and collaborations

Activities Involved in Due

Diligence
O Financial

Statements: Review and confirm the

existence of assets, liabilities, and equity in the
balance sheet to determine the financial health of the
company based on the income statement.
O Management and Operations review: Determine
quality and reliability of financial statements to gain a
sense of contingencies beyond the financial
statements.
O Legal Compliance Review: Check the potential
future legal problems stemming from the target's past.
O Document
and Transaction review: Ensure
paperwork of the deal is in order and that the
structure of the transaction is appropriate.

Steps in Due Diligence Process

Planning Phase
O Defining the scope: Establishing and prioritizing clear

objectives, studying the availability of resources and

defining the areas on which the team has to focus
O Deciding the focus areas: sustainability, financial,

market, competition, technology, management team etc

O Finalizing the team structure:

members should be
chosen based on their skills and background so that the
project is successful.

O Clear definition of responsibilities

O Defining time schedules of each key step
O Timely communication of information requirements

Data Collection Phase

O Involves collecting existing business

process data, key products, critical to

quality services.
O Information sources: Internet, Regulatory
organizations and databases, Competitors,
Vendors, Customers ,Industry associations
and Chambers of commerce
O Meeting with company management
O Interview with key customers and suppliers
O Site Visits, surveys

Data Analysis Phase

O Involves analysis of the collected data and

arriving at a conclusion based on critical factors

O the team may uncover some issues that lead to
a favorable impression of the organization and
others that cause concern
O Weighing of a variety of factors to determine
whether team should give a positive
recommendation
O All the factors need to be considered and the
organization should balance them to arrive at a
decision.

Report Finalization
Phase
O Formalize finding into final

presentation and final deliverables

O The due diligence team prepares due
diligence report and presents its
conclusion that becomes an integral
component of the decision-making and
negotiation processes.

Due diligence reporting

O Should

reflect a fair and independent

analysis and evaluation of financial and
commercial information
O Should ensure collection, analysis and
interpretation of financial, commercial and
tax information in detail
O Should provide properly reviewed and
analysed financial information to bidders and
various stakeholders
O Should also provide a feedback on auditing
of the special purpose accounts

Information needed for Due

Diligence
O Historical Financial Data
O Current Financial Data
O Forecasted Financial Information
O Business Plans
O Minutes of Directors Meetings and

Management Meetings
O Audit Paper Work Files
O Contracts with Suppliers, Customers and Staf
O Confirmation/ Representations from Financiers,
Debtors, etc.

Due Diligence Report

Five aspects are needed for preparation of
report
1. Men- Personnel(employees, BOD,
promoters, influencers)
2. Machine- Products, technology and
technical aspects
3. Market-Product market analysis
4. Marketing- sales, promotion, partners,
alliances, strategy.
5. Money- Financial status.

Types of Due diligence

Financial Due Diligence:
O Involves evaluating a companys historical,

current, and prospective operating results as

disclosed in its historical, current and projected
financial statements, tax returns, and other
information .
O Helps in getting a sense of future revenues
O Evaluates the underlying assumptions used

O Revenue of Pourshins
O 2007-2008: $250 million
O 2008-2009: $325 million

30%
revenue
growth

O Revenue and volume growth of the

target companys clients is provided

O Growth rate of BPO- 9%
O High growth opportunities
O Unable to forecast then future
financial health because of the
insufficient data- debt obligations,
current assets, fixed assets

Types of Due diligence

Legal Due Diligence:
O Examination of all, or specific parts, of the legal

afairs of the target company with a view of

uncovering any legal risks and provide the buyer
with an extensive insight into the companys legal
matters
O Improves the buyers bargaining position and

ensures that necessary precautions in relation to the

transaction are taken

O Rules governing M&A in the U.K. are

determined by the Takeover Panel,

whose approximately 35 members
include bankers, lawyers and other
industry players.
O Companies has 28 days to make a
binding ofer, or walk away for six
months.
O The put-up-or-shut-up rule requires a
bidder to make a formal ofer for a
target within 28 days after its intentions
become public.

Types of Due diligence

Operational Due Diligence:
O Involves the on-site analyses of the target business

daily processes and of how the business operates.

O Analysis includes an evaluation of the key employees,

managers, independent contractors, suppliers and

other factors necessary for the business to conduct
normal operations
O Involves gathering information on:
O New product or service creation
O Markets
O Competition
O Sales Targets
O People/Organizational matters

Types of due diligence

Intellectual Property Due Diligence:
O Through analysis needed in this area as

economies are increasingly becoming technology

driven
O process of identifying all intellectual property

assets, verifying ownership and ensuring that

such assets are free of encumbrances for the
intended business use is fundamental to any
merger, acquisition or investment

Types of due diligence

IT Due Diligence
O Involves scrutiny of IT systems and processes

in use and ascertaining better ways of

deriving value and leverage from IT assets
O Involves:
O Sending an IT request list to the acquired company
O Compiling an onsite discovery process outline
O Conducting a review of the requested materials
O Scheduling and coordinating the onsite visit

Types of due diligence

Human Resource Due Diligence:
O Involves valuing the contribution of HR
O Establishing a link between organizational objectives and the

HR function
O Determining HR's influence on the skills and motivation of the
workforce
O Determining the managers views of the HR function
O Ascertaining the outcomes produced by the HR deliverables
O Measuring the adequacy of HR measures, metrics and
benchmarks
O Ascertaining the total cost of the HR function and industry
comparisons
O Ascertaining the HR team structure, skills and motivation.

Why due diligence

fails?
O Failure to Focus on Key Issues
O Failure to Identify New Opportunities and

Risks
O Failure to Allocate Adequate/ Right
Resources