Pre-acquisition due diligence

Case #1: Due diligence prior to entering Asia-Pacific via acquisition

A medium-sized, US-based specialty surgical instruments firm was attempting to enter the Chinese and Korean markets through the acquisition of a local manufacturer/distributor in northeast China. Negotiations resulted in a nonbinding terms sheet with agreed upon price of over USD $9mil, pending an official board of directors vote and final written agreement.

Prior to the vote and signing, our client tapped us to perform on-the-ground due diligence to supplement that of their internal development team. We rapidly deployed, and through a combination of interviews with former employees, logistical assessments, and discussions with competing and complimentary entities in the region, we determined that the potential Chinese acquisition target had dramatically overstated their market penetration, product demand, and revenues.

Armed with these powerful new insights, our client confidently returned to negotiations, catching the Chinese firm completely off guard. The acquisition ultimately went through, but with a final sale price of just USD $6mil. This was over USD $3mil favorable to what had been agreed upon prior to our professional assessment.

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