Outline of a three-part due diligence investigation that should be conducted before making an overseas acquisition.
When Interplex Industries showed interest in acquiring a small French competitor, some at the tool-and-die manufacturer in New York City were apprehensive. "There was a real barrier because of language and financial terminology," explains treasurer Irving Klein. "When a French person speaks of sales leases, he or she may mean very different things from an American."
Interplex hired Stanley Nasberg, a managing partner with New York City-based accounting firm M. R. Weiser, to supervise an international due-diligence investigation. According to Nasberg, U.S. companies need to conduct a three-part investigation on any overseas deal:
Financial review. This is the equivalent of a financial audit, performed in Interplex's case by a French accounting firm affiliated with M. R. Weiser. The firm analyzed the target company's financial statements and translated them into the United States' Generally Accepted Accounting Principles. "Since the purchase price was heavily tied to asset value, we needed to focus on the accuracy of balance-sheet items such as inventory and accounts receivable," Nasberg says. "It's important to remember that U.S. accounting and auditing rules are much more conservative than those of almost all other countries."
Business review. "U.S. companies need someone to appraise the market value and reliability of machinery and equipment," says Nasberg. That information should be passed along quickly, generally by phone rather than by a written report, so it can have an impact on negotiations over purchase price.
Employee review. The foreign accounting consultant should evaluate the quality of the work force at the company being considered for acquisition. "It will save you time and possibly money," says Nasberg, "if you know in advance whether you will want to retain already-trained employees."