Due diligence is one of the most important steps in buying a business. Large enterprises as small business, have teams of experts that go into a business being purchased and investigate every facet of how that business has been operating, and whether or not the seller properly represented what they were selling.
Due diligence refers to the care and discretion that any reasonable Company would take before entering into a legal contract or business transaction.
Officers of companies have a fiduciary duty to perform thorough due diligence before making any acquisition or investment, in order to reduce the risk and provide a solid return.
HOW IT IS COMPOSED
Due diligence takes different forms depending on its purpose:
- The examination of a potential target for merger, acquisition, privatization, or similar corporate finance transaction normally by a buyer. (This can include self due diligence or “reverse due diligence” )
- A reasonable investigation focusing on material future matters.
- An examination being achieved by asking certain key questions, including, how do we buy, how do we structure an acquisition, and how much do we pay?
- An investigation of current practices of process and policies.
- An examination aiming to make an acquisition decision via the principles of valuation and shareholder value analysis.
The due diligence process can be divided into the following areas:
- Compatibility audit.
- Financial audit.
- Macro-environment audit.
- Legal/environmental audit.
- Marketing audit.
- Production audit.
- Management audit.
- Information systems audit.
- Reconciliation audit.
It is essential that the concepts of valuations (shareholder value analysis) be linked into a due diligence process. This is in order to reduce the number of failed mergers and acquisitions.
- Can collect current information to make good business and financial decisions.
- Can avoid costly mistakes.
- Can avoid future law suits from bad partnerships.
- Help you get proof to better negotiate terms for future acquisitions.
- Allows you to evaluate the amount of risk involved.
- Gives insight to the overall state of an organizations health and stability.
H.S.M.I. MERCHANT BANKING, thanks to the high professionalism of their own consultants, intervenes in the Due Diligence steps in order to help the Investor or Seller to make the best decision and the best deal.