Due diligence? What's that? ask Asia-based business executives

A quarter of Asian-based company executives did not carry out due diligence on takeover targets before closing the deal, a survey of cross-border acquisitions over the past three years reveals.

The survey, compiled by consultancy firms Mercer and Kroll, shows that 26 per cent of the 155 respondents had never conducted due diligence - an investigation of a business or a person before a party signs a contract - or had considered doing so. And 9 per cent said they did not know what investigative due diligence was.

Forty-seven per cent of respondents that had found incidents of fraud in their target company indicated that they had uncovered them only after the transactions had been closed and as a result they had to renegotiate or exit the deals.

Respondents from Singapore, Hong Kong and Australia are more likely to have tried to obtain information on the management's background, company reputation, track record, regulatory compliance, market conditions, hidden interests, environmental liabilities and facts that had not been previously disclosed before agreeing on a takeover.

Respondents were selected at random from a list of recorded merger and acquisition transactions worth more than US$5 million from March 29, 2007 to March 29, 2010 compiled by mergermarket, the data provider.

Despite the Greater China region being viewed as a hub for merger and acquisitions over the next 18 months, it is among the riskiest areas for a takeover, owing to bribery concerns.