The due diligence process from the underwriter's - Fried Frank

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• accounting due diligence, • backup review, • corporate governance/Sarbanes-Oxley due diligence, if appropriate, and • audit committee due diligence, if appropriate or deemed necessary. a. Background Due Diligence • Underwriters can review public sources of information about a company and its industry: • Lexis/Nexis searches of newspaper and magazine articles about the company, its directors and officers and its industry, as well as Google searches (should be done as early as possible in the deal) • Analyst or rating agency reports on the company or industry sector • Industry-specific magazines (such as Automotive Rental News or Chemical Report) • The company’s web site (which may include archived press releases and investor presentations) • The company’s SEC, statutory or stock exchange filings • Prospectuses or SEC filings of companies in the same industry • Press releases or articles regarding the company or the industry • Third party chat rooms devoted to the company • Public information about the country in which the company conducts most of its business b. Business Due Diligence • The underwriters will also engage in a formal business due diligence procedure which may include some or all of the following elements: 10 98
• interviews with senior management (CEO, CFO, SVPs) of the company • It is often a good idea to ask the same question to different people at different levels of management in a company. Sometimes you will get conflicting answers. • background check of management • interviews with the company’s middle management, such as the officers in charge of marketing, sales, human resources, production, manufacturing or other core areas • site tours of the company’s principal facilities or retail locations • interviews with the company’s principal customers, suppliers or other business partners • These interviews should be conducted without the company’s presence. • In some transactions the underwriters may retain specialized consultants. For example, the underwriters may retain retail consultants to tour and evaluate a new distribution center or information systems consultants to evaluate the company’s systems. • The underwriters should follow up with the company or other appropriate persons on issues raised by the consultants. • In general, the underwriters and underwriters’ counsel should regularly communicate with each other about issues they each uncover during the due diligence process. c. Financial Due Diligence • Bankers review in detail the company’s projections and business model with the company’s CFO and financial management. Underwriters’ counsel should be involved in the process. • Bankers should analyze the reasonableness of the assumptions underlying the projections. Bankers should evaluate whether the business model is realistic. • Bankers may review a base case model, a best case model and a worst case model. 11 99
Page 1: 3 THE DUE DILIGENCE PROCESS FROM TH
Page 5 and 6: 1. WHY DO UNDERWRITERS CONDUCT DUE
Page 7 and 8: or other written or oral statement
Page 9: numbers which become available for
Page 13 and 14: • revenue recognition • goodwil
Page 15 and 16: • Correspondence with the SEC or
Page 17 and 18: • In U.K. public equity offerings
Page 19 and 20: j. Audit Committee Due Diligence
Page 21 and 22: • During the due diligence proces
Page 23 and 24: • Even though the financial state
Page 25 and 26: • “It argues in particular with

The due diligence process from the underwriter's - Fried Frank

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