The Vodafone- Idea Merger And Due Diligence

#IRL

There was an online retail start-up which was quite celebrated in the media. It was rumoured to be the next big thing in its space. A lot of VC firms showed interest in funding the company. However, a couple of months after initiating talks to invest, the VC firm decided to back out of the deal. It was discovered during the due-diligence process that the firm had been manipulating the sales and showing inflated revenues by passing off the founder's uncle's Sari shop's offline sales as online e-commerce sales.

Many planned mergers have fallen through after thorough due diligence because one of the parties has misrepresented facts.

Due-Diligence in the context of Mergers, Acquisitions, Investments etc.

If you are in the Investment Advisory or Investment Banking profiles you are likely to be part of the due-diligence team going through documents, verifying data etc. in the early part of your career. Specialised due-diligence is often outsourced - For e.g. Legal due-diligence is done not by bankers or finance professionals but Law firms.

What is due-diligence?

Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. The theory behind due diligence holds that performing this type of investigation contributes significantly to informed decision making by enhancing the amount and quality of information available to decision makers and by ensuring that this information is systematically used to deliberate in a reflexive manner on the decision at hand and all its costs, benefits, and risks. Due diligence takes different forms depending on its purpose:

- The examination of a potential target for merger, acquisition, privatization, or similar corporate finance transaction normally by a buyer. (This can include self due diligence or “reverse due diligence”, i.e. an assessment of a company, usually by a third party on behalf of the company, prior to taking the company to market.)

- A reasonable investigation focusing on material future matters.

- An examination being achieved by asking certain key questions, including, how do we buy, how do we structure an acquisition, and how much do we pay?

- An investigation of current practices of process and policies.

- An examination aiming to make an acquisition decision via the principles of valuation and shareholder value analysis.

_{Disclaimer: Curated Content! Source: Wikipedia}

Module Summary

In this module, we learnt about various role specific functions that exist in finance. We learnt about treasury functions. We also saw credit analysis and ratings as a separate functions. We then studied transaction banking, restructuring and due diligence.

Up Next

In the next module, we share some additional resources that will  help you understand various roles in banking and finance. We also share additional resources that will help you crack your interviews.