Valuations, Mergers & Acquisitions, and Due Diligence

A stable organization is an organization that is aware and acknowledges the uncertainty of the market, which are endangering its stability and might undermine organizational dynamics.

To survive these kinds of situations, various actions are taken to improve positions and to contribute to the stability of the organization, if God forbid, the stability of the organization was damaged, it is required to react and take action. This is done by assessing the organization's value, an examination of the organization to take steps towards a restructure, and in certain situations to consider and act to assimilate it within other organizational structures.

Valuations:

In valuation, we evaluate and analyze the property, business, merchandise, fixed income, etc. These estimates are based on several methods because there is no one method to evaluate all types of assets.

Under valuations are the following tasks:

  • Build economic performance measurement models when many of them rely on discount cash flow (DCF).
  • Conducting market research and identifying impacts, as well as conducting in-depth economic and industrial research on a variety of different industries to examine trends and potential impacts on the analyzed organization.
  • Review ongoing processes, carry out adjustments or present initiatives to improve efficiency and to provide more effective business support.
  • Assist in preparing the data to be submitted to the evaluation committee and present findings to pricing committees and other managers as needed.
  •  Present the findings to managers and stakeholders.

Mergers & Acquisitions:

In the process of merger and acquisition, a change in structure, along with the transformation of the main control in charge of the business. When the process is not carried out and\or properly embedded, the result and implications can be devastating for all of the business units involved.

Auren Israel serves as a bridge between purchasers and companies (as well as purchasers from abroad who expressing interest in Israeli companies); between various types of organizations, which are striving to perform a merger. Auren assists these companies and organizations at all of the stages of business or employment.
The financial department learns the specific and special needs of the clients, to customize the work methods accordingly. To create a dedicated business strategy that meets the needs of the organization throughout the process and with reference to fulfill the organization's future goals.

The department's work process includes the conduction of due diligence.

Due Diligence:

Due diligence is an investigation or review for a potential investment or product to confirm any financial aspects that may affect prior to entering into an agreement or financial transaction with another party and is conducted by reviewing financial records.

Its significance lies in the area of responsibility for full disclosure of material information related to the property that is for sale. Therefore, due diligence has become a standard stage in IPO (Initial public offering) and is undergoing an underwriting process to ensure that all relevant information pertaining to the asset under consideration has been disclosed to the potential investors.

The following list of due diligence steps is not complete as there are many types of securities and as a result, many variations of due diligence:

1. Analysis of the capital (total value) of the organization.

2. Overview of Income and Profits of the Organization: It is important to keep track of any trends in the income of the organization, operating expenses, profit margins and return on capital.

3. Competitor and Industry Review: Each organization is partially defined by its environment of competition and competitors in it. A look at its main competitors teaches a lot about the state of the organization, i.e., does the organization lead in its industry or in specific target markets? Is the industry likely to grow? Perform due diligence on several organizations in the same branch can provide investors with insights on the organization and especially if it has advantages over its competitors.

4. Multiplier Assessment: There are many financial ratios and metrics that investors can use while assessing organizations. There is not one ideal value for all types of investment, and it is, therefore, advisable to integrate connections into different parameters to create a complete picture and lead to a more informed decision-making process. For example, a price-to-earnings ratio or a price-to-growth rate or sales ratio.

5. Management and Shareholders Review: Is the organization still managed by its founders? Research conducted by the board members to examine their own focus and professional experience. The examination of the shareholders and their retention ratio might indicate the organization's status. Does the person in the management have many shares? (there is a connection between the management holding the shares and the desire to benefit from the shares).

6. Balance Sheet Review: An overview of assets and liabilities, as well as the amount of cash to monitor and supervise the level of debt, and how is it compared to other organizations in the same industry. Big debt is not necessarily a bad thing; this determination depends on the business model of the organization and the nature of the industry. The goal is to see if the organization can provide enough cash to pay off debt and dividends.

7. Stock Price History: Is the stock volatile or stable? (it is important to remember that past prices do not necessarily predict future price movements).

8. Dilution Inventory: Investors need to know how many shares exist for the company and how that number is relative to the competition. Does the organization plan to issue additional shares, thereby reducing the proportion of shareholders or actually diluting its number of shares?

9. Examining long-term and short-term risks: Understanding the risks inherent in the industry as well as the organization's specific risks. Are there any political or regulatory risks? Is the management stable?