Due Diligence

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Summary

What is Due Diligence? Meaning.

Due Diligence is the process whereby an investing party investigates, analyses, and evaluates an intended major investment, transaction, takeover, or business partnership prior to committing capital to it. The purpose of a due diligence investigation is to determine whether the investment makes financial and/or strategic sense and to check if the information about the investment that is available is correct and complete. Also, it is a way of preventing unnecessary harm to either party involved in a transaction.


Some typical areas for due diligence include the key risks associated with the opportunity, quality of the management team, assets, liabilities and solvency, a determination of the  purchase price, press and SEC filings, regulatory and licensing problems, liens and judgments, conflicts of interest, civil and criminal litigation matters, etc.


Forms of Due Diligence. Types.

Several types of Due Diligence can be distinguished, such as:

  • Business Due Diligence: Business due diligence refers to ensuring that the buyer receives all material facts that are needed to make an accurate assessment and a fully informed decision of the real state of the organization while simultaneously not excessively harming the seller's business. Business Due Diligence actually is a very broad concept that includes operational due diligence; market due diligence; environmental due diligence; HR due diligence and other business-related types of due diligence.
  • Financial Due Diligence: Financial due diligence involves a qualitative and quantitative assessment of an organization's financial performance, so as to create an understanding of its earnings and other financial perpectives on a normalized basis. Activities within this type of due diligence include reviewing accounting and auditing procedures; earning and cash flow analysis; reviewing operational processes and information systems so as to assess the extent to which financial information is reliable.
  • Legal Due Diligence: Legal due diligence is associated with risk management. It analyzes the possible legal risks associated with the organization's corporate status, assets and liabilities, securities, employment conditions/regulations and so forth. In short, it analyzes an organization's intra- and inter corporate transactions in terms of its legal aspects.
  • Tax Due Diligence: In tax due diligence, special attention is paid to the tax opportunities and possible pitfalls. It also provides insight into the tax structure and tax history of the company to be acquired and into the tax relationships with other (group) companies or related parties.
  • Secretarial Due Diligence: Secretarial due diligence covers a secretarial audit of the targeted organization, and focuses on ensuring that the targeted organization complies with the rules and regulations of the buying organization.

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Technical Due Diligence
When an engineer was performing a due diligence, I understood that although due diligence normally is a financial issue, (...)
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Role of Human Resources in Due Diligence
I strongly feel that due diligence will not be successful until a comprehensive review is made on the following HR aspec (...)
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🔥 NEW Treatment of Extraordinary Bad Debt Expenses in EBITDA, NWC and Net Debt
In case of a non-recurring bad debt expense, we add it back to EBITDA in both the direct method and the allowance method (...)
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IT Due Diligence Areas

Information Technology, Assessment, IT Due Diligence, Components
Today technology has a direct and major impact on the following things among others: 1. Top line growth 2. EBITDA 3. (...)
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Due Diligence: Types and Processes, Focus Areas and Relevance

Due Diligence, Merger and Acquisitions
Detailed presentation about Due Diligence for M&As. The presentation includes the following sections: 1. Agenda 2. Wh (...)

Introduction to Due Diligence: Concept and Best Practices

Due Diligence, Merger, Acquisition, Strategic Partnership, Intellectual Property, IPO, Business Investigation Process
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