Acquiring a business in Switzerland is an ambitious and life-changing process. However, this process requires several crucial steps, including due diligence. But what does this term, often misunderstood by many Swiss entrepreneurs, really mean? This article explores in detail what you need to know about due diligence, its origins, its role in Switzerland and its different applications.
What is due diligence?
The term due diligence, also called “due diligence”, covers all the analyses and checks carried out before acquiring a businessThis step allows the buyer to carefully assess the situation of the desired company.
Legal origin of due diligence
The concept of due diligence has its roots in American commercial law in the 1930s. At the time, sellers of financial securities had to ensure the accuracy of information provided to potential buyers in order to obtain approval from the SEC (Security Exchange Commission). This principle was based on a notion of due diligence and good faith, making the parties responsible in the event of false declarations.
Application in Switzerland
In Switzerland, due diligence is defined as an in-depth audit prior to the takeover of a company. It is a key step in securing the buyer, particularly when the company is sold outside the family framework. The checks include several essential aspects, such as:
- Tax, accounting and financial analysis : evaluation of the financial statements, tax obligations and economic health of the company.
- Study of contractual and legal aspects : review of current contracts, potential disputes and legal compliance.
- Inventory and equipment estimation : verification of the value and condition of material assets.
- Assessment of customer base and performance potential : analysis of customer base, satisfaction and growth prospects.
- Analysis of employees and internal structure : understanding of the organization chart, key skills and corporate culture.
These reviews not only help to justify the purchase price but also reduce the risks associated with the acquisition.
Why is due diligence essential?
Due diligence ensures transparency between the seller and the buyer of a business. The latter obtains an overview of the strengths and weaknesses of the company. At the same time, the seller benefits from a complete audit, thus strengthening his negotiating arguments.
The different types of due diligence
Due diligence can be broken down into several audit areas. Depending on the size of the company and its sector of activity, it is possible to customize the analyses to focus on the most relevant aspects.
Financial and legal due diligence
This analysis aims to assess the financial strength of a company, by examining its assets, cash flow and debt. On the legal side, it covers crucial aspects such as:
- Employment statuses and contracts : verification of the legality and conformity of official documents.
- Intellectual Property and Patents : identification rights held and protections in place.
- Competition law obligations : assurance of compliance with antitrust regulations and fair practices.
Carrying out these checks ensures a solid legal basis for negotiation and prevents possible future disputes.
Commercial and strategic due diligence
Understanding the target market is essential. To do this, the analysis should include:
- Identifying customers and prospects : knowledge of current and potential customers.
- The study of suppliers and subcontractors : assessment of relationships and partner reliability.
- An assessment of competitors and market trends : analysis of the company's position in its sector.
Good marketing preparation allows the buyer to better plan the integration of the acquired company.
Tax inspection
Beyond current taxation, it is essential to anticipate possible legislative changes. This limits the risks of unforeseen costs linked to tax audits.
The operational and technical study
This step analyzes internal processes, service quality and productivity. Optimizing these elements can generate significant savings.
IT due diligence
In the digital age, security breaches can be costly. IT due diligence identifies vulnerabilities in existing systems. In addition, it assesses whether the company is suitable for modern tools, such as digitalized project management.
The environmental and social aspect
Expectations for corporate social responsibility are increasing. The buyer must ensure that the company complies with environmental standards and has a healthy corporate culture. This limits reputational risks and strengthens the sustainability of the company.
Due diligence: a process that benefits all parties
There due diligence offers considerable advantages for both the buyer and the seller. It reduces the uncertainties associated with the purchase and promotes informed decision-making.
For the buyer: a clear and precise vision
By conducting thorough due diligence, the buyer identifies strengths and weaknesses of the company, which allows it to:
- Estimate the real value of the company : Through a detailed financial analysis, it is possible to assess whether the asking price corresponds to the market value.
- Reduce risks : By understanding potential threats, such as pending litigation or undisclosed debts, the buyer avoids unpleasant surprises after the acquisition.
- Preparing for a successful integration : Once internal processes and resources are assessed, the acquirer can plan for a smooth transition.
For the seller: a solid negotiating argument
For the seller, due diligence represents an opportunity to:
- Highlight the company's strengths : A positive audit builds credibility and inspires confidence.
- Justify the asking price : A well-documented analysis helps to avoid prolonged negotiations or offers that are too low.
- Identify areas for improvement : By correcting weaknesses identified before the sale, the seller can increase the value of the company.
Challenges of due diligence
While due diligence is essential, it can also present challenges. It is important to be aware of these in order to better overcome them.
A long and costly process
Due diligence can take several weeks or even months, depending on the size and complexity of the company. In addition, it often requires the intervention of specialists, such as lawyers, accountants or consultants, which can represent a significant cost.
Trick : To optimize costs, focus efforts on the most critical strategic areas, such as finance and legal.
Risks of leakage of sensitive information
The exchange of detailed information between the buyer and the seller involves risks, including the risk of unauthorized disclosure of confidential data.
Solution : Signing a Non-Disclosure Agreement (NDA) is a common practice to protect both parties.
Managing emotional biases
When making an acquisition, emotions such as enthusiasm or attachment to a company can influence judgments. It is essential to maintain a rational perspective.
Advice : Relying on external experts ensures an impartial and fact-based analysis.
Current trends in due diligence in Switzerland
Due diligence practices are evolving with new market realities and technological advances. Here are some trends that stand out in Switzerland:
The integration of digital tools
Companies are increasingly using digital platforms to centralize and analyze data during due diligence. These tools improve transparency and speed up the process.
Taking into account ESG criteria
Environmental, social and governance aspects (ESG) play an increasing role in acquisition audits. Companies that integrate sustainable practices into their operations attract more buyers.
The increased role of cybersecurity
With the increase in cyber attacks, IT due diligence has become a priority. Buyers are now evaluating the security measures in place to protect sensitive data.
How to succeed in your due diligence: some practical tips
- Plan Ahead : Determine which areas to prioritize based on your acquisition goals.
- Work with experts : Use experienced professionals to ensure a comprehensive analysis.
- Use technology : Leverage digital tools to collect, organize, and review data more efficiently.
- Stay flexible : Adapt the process according to the specificities of the target company.
Conclusion: due diligence, an essential step to secure your acquisition
In summary, due diligence is an essential strategic process to ensure the success of an acquisition. It allows the buyer to reduce risks, while providing the seller with solid arguments to justify the asking price. Although demanding, this step is essential to build a relationship of trust between the parties and lay the foundations for a sustainable entrepreneurial project.
For personalized advice and complete support in your due diligence process, call on the services of a professional. Their expertise in the sale and purchase of companies in Switzerland will guarantee you a quality service tailored to your specific needs.
