Summary
Conducting due diligence presents an opportunity to thoroughly examine the target business when considering a merger or acquisition. While focusing on detailed financial and legal aspects is essential, the due diligence process should also encompass operational and commercial risk areas. A comprehensive due diligence exercise yields numerous benefits. When executed diligently, it provides the acquiring party with valuable insights to support the proposed acquisition, identifies potential risks in the target business early in the acquisition process, highlights areas needing attention, and assesses the associated costs and impact on value.
How we can help you
In recent years, numerous instances have demonstrated that conducting due diligence using corporate intelligence methods has revealed various risks, potential liabilities, or a lack of alignment between companies, rendering the acquisition unfeasible. The expense associated with due diligence is a modest investment compared to the substantial benefits it yields, far outweighing the repercussions and costs of a flawed acquisition. Hence, allocating adequate time and resources to the due diligence process is imperative. Doing so can result in significant savings in money, time, and potential complications in the future.
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What are the areas due diligence should cover?
In the context of business transactions, due diligence encompasses several essential aspects.
Financial due diligence involves a comprehensive review of the target company’s historical and projected financial performance within its current business framework. Its objective is to ascertain the accuracy and fairness of the financial information and determine whether the proposed acquisition price is justified.
Legal due diligence entails investigating various areas, such as corporate and legal structure, commercial and employment contracts, intellectual property, information systems, environmental and safety standards, regulatory compliance, competition, litigation, tax, and property.
Operational due diligence evaluates the strengths and weaknesses of the target company’s operations, including its organizational structure, IT systems, sales, marketing, supply chain, logistics, processes, and future potential.
The benefits of great due diligence
- Helps to identify and manage risk areas.
- It could allow you to negotiate a better deal.
- It will enable you to decide if the target company is the right fit.
- Provides expert third-party insight into the target company.
- Provides transparency for both parties in the deal.
- It can improve relationships between the two companies.
- It can save you valuable time later in the agreement.
- It clarifies whether the business’s financials are an accurate and fair view.
- Provides an overall picture of the company’s operations.
- It can ensure a more substantial deal and smoother transaction.
In each aspect above, applying Corporate Intelligence methods yields substantial enhancements in the ultimate results achievable, in contrast to conventional due diligence practices.