The Link Between Valuations and Due Diligence (Manuscripts‪)‬

ABSTRACT This paper deals with the link between valuations and due diligence in merger and acquisitions. It analyses due diligence in terms of the net asset, the discounting of future cash flows and earnings valuation methods and the residual income method. It attempts to highlight the motives for mergers and acquisitions and converts these into the concepts of valuations, while considering shareholder value. While many authors implicitly understand this, the issue has often been sidelined leading to an overemphasis on less vital matters. The paper examines faults in current due diligence approaches and provides possible solutions to these problems by emphasising the link between due diligence and valuations. The topicality of shareholder value analysis and hence the due diligence valuation link is underpinned by recent empirical findings, its prominence in recent literature and the fact that shareholder value analysis is not being used sufficiently in practice.