The kind of due diligence required is determined according to the industry, company and the complexity of the deal. Its goal is to find unforeseen issues before they can adversely company website affect the transaction and the parties’ interests.
During due diligence on financials buyers scrutinize the financial records of a potential company and also the accuracy of figures displayed in the Confidentiality Memorandum (CIM). It also investigates the target’s fixed assets (opens in new tab) like vehicles as well as machinery and office furniture, using appraisals and other documents. In addition, buyers conduct an exhaustive analysis of the target’s expenses that are prepaid expenses(opens in new tab) as well as deferred expense(opens in a new tab) and receivables(opens in new tab).
Operational due diligence(opens in a new tab) involves analyzing a company’s organization’s culture, business model and leadership. This includes assessing whether a company is well-positioned to thrive in its chosen market and the strength of its brand. It also assesses a company’s capability to meet revenue and profit targets. Operational due diligence can also include reviewing a target’s HR policies and organisational structures to assess employee-related risks, including golden parachutes and severance packages(opens in an entirely new tab).
Risk assessment is the backbone of a due diligence process. It includes potential financial and legal risks as well reputational issues that may arise from the transaction. A thorough due diligence process identifies and reduces these risks, ensuring success of a deal.
