Due diligence is an extensive investigation process that needs to be conducted prior to making any major business decisions like mergers, acquisitions or investments. It encompasses everything from financial analysis to legal assessments, operations evaluations. In reality, inadequate or inadequate due diligence is one of the major causes of failed M&A deals.
The five most commonly used types are:
1. Financial due diligence is essential for all parties involved in the process to evaluate the financial health of the company especially prior to an acquisition. This kind of due diligence involves scrutinizing all financial records including profit and loss statements as well as balance sheets and a company’s liquidity. It also involves examining existing financial agreements like loans and contracts.
2. Legal due diligence
A comprehensive legal due diligence process is crucial to avoid legal issues post-acquisition. This includes assessing contracts, licenses and any litigation history in addition to ensuring that an organization is compliant with all applicable regulatory requirements. It is also a good idea to conduct an exhaustive examination of the employees of an organization in order to discover any skeletons lurking in the closet.
3. Environmental due diligence
Environmental sustainability is a major priority for companies today. Due diligence can assist in determining a company’s environmental practices and liabilities as well as compliance with sustainable standards. This also entails exploring the market, for example by conducting interviews with customers and evaluating competitors. The data collected can be used to build a more complete image of a company’s economic standing, both now and in the future.
Comments (0)