Due diligence differs based on the company and industry as well as the nature of the transaction. Its goal is to uncover any unanticipated issues that could impact negatively the deal and the interests of both parties.
During due diligence on financials the buyer examines the financial records of a company’s target and the accuracy of the numbers presented in the Confidentiality Information Memorandum (CIM). The buyer also examines the target’s fixed assets (opens in new tab) including vehicles machinery, vehicles, and office furniture, in conjunction with appraisals and other documents. In addition, buyers conduct an extensive analysis of a target’s pre-paid expenses(opens in a new tab) as well as deferred expense(opens in a new tab) and receivables(opens in a new tab).
Operational due diligence(opens in new tab) involves analysing a company’s organization’s culture, business model and leadership. This includes assessing whether the business is well placed to thrive in its market of choice and the effectiveness of its brand. It also assesses a that site company’s ability to meet profits and revenue goals. Additionally operational due diligence entails looking into a target’s human resource policies and organisational structure to determine risks posed by employees such as severance packages and golden parachutes(opens in a new tab).
The risk assessment is the defining element of any due diligence process. It covers potential legal and financial risks, as well as reputational concerns that could arise from the transaction. A thorough due diligence procedure determines the risks and minimizes them, ensuring that a deal is successful.
