Polish Investors Place Emphasis on Historical Verification in Due Diligence Process

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In contrast to Western countries, Polish investors prioritize verifying historical financial data and information presented by the acquired entity during the due diligence process. This was highlighted at a European conference on due diligence, where transaction advisors from across Europe shared their experiences and views on conducting due diligence.

Emphasis on Historical Verification in Poland

In Poland, investors often come from within the same industry, seeking to expand their operations through market expansion, new supplier acquisition, or vertical integration. As a result, the scope of due diligence is focused on confirming historical information presented by the acquired entity, with strong emphasis placed on verifying financial data.

Limited Accounting Practices and Internal Control Systems

The majority of acquired entities in Poland are small or medium-sized companies with limited accounting practices and underdeveloped internal control systems. Financial reporting often leaves much to be desired, making it essential for investors to conduct due diligence to uncover what is truly going on within the company.

Focus on Future vs. Past

In contrast, countries where financial entities are the primary investors tend to focus more on the future of the company, rather than its past. Historical data is treated as a fact and not subject to further verification, with the scope of due diligence centered around evaluating the maximum financial benefits that can be obtained through purchasing the company.

Evaluating Attainable Normalized EBITDA and Working Capital

Polish investors also place significant emphasis on evaluating attainable normalized EBITDA and working capital, which enables them to assess what financial resources will be needed and what rate of return they can expect from their investment. This approach is distinct from countries where share sale agreements are typically constructed based on EBITDA and working capital, resulting in a more collaborative due diligence process between the acquiring company, acquired company, and expert auditors.

Purchase Price Negotiations

In Poland, the purchase price is often fixed in advance, with information obtained during due diligence serving as a bargaining chip in final negotiations. This can lead to reluctance from the acquired company to provide information, as the less they know, the stronger their negotiating position becomes.