Exploring traditional due diligence processes in South Africa

Abstract

The effectiveness of due diligence (DD) processes, and whether they contribute to merger and acquisition (M&A) success or failure, is an ongoing debate in auditing and assurance research. This article contributes to the debate by examining traditional DD in South Africa (SA) using a qualitative research approach. A data set of traditional DD processes was compiled from the literature, which formed the basis for an interview agenda which was conducted with corporate finance and audit practitioners in SA. The findings indicate that the DD process is considered to be an evolving process, where DD processes of the last decade are considered to be significantly different from DDs required in acquisitions today. Traditional DD, while considered to be indispensable, has its shortcomings in execution rather than the model. At present, it is found that much focus is placed on accounting and legal aspects, while other critical issues are neglected; macro-environment, management information systems, marketing and productions are such overlooked aspects. This article proposes a critical new trend in the forms and manner of the currently flawed DD processes in SA which is useful for DD practitioners in the present and in the future for local M&A success.