Due Diligence is a series of transactions that involve the inspection of a company and making sure that it meets certain criteria. Due diligence is usually conducted by an interested buyer during merger and acquisition. Because it is important to know what exactly you are buying. And also allows buyers to have a clear picture about the targeted business during M&A.
A buyer may be requested to sign a non-disclosure or non-compete agreement before being granted sensitive and confidential access to the business’s information. Because Due diligence provides the buyer more insights about the business operations and stalkholders.
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What is the Due Diligence Process?
Due Diligence is a comprehensive audit, usually conducted before a merger or acquisition. The purpose of the Due Diligence on the business is to ensure that any decision taken regarding the company in question is an informed one and maximizing your chances of adding value in an M&A transaction.
Let’s see exactly when is Due diligence is taking place during the M&A.
The due diligence process involves a lot of data, across all of the business operational areas. The goal of the review is to piece together all of this information to come up with a conclusion. Should we proceed with the M&A transaction or no?
This usually involves the people in charge of the process convening and deciding if there’s anything that was disclosed in the process that changes their initial opinion on a deal.
- What do the company’s annual, quarterly, and (if available) monthly financial statements for the last three to five years reveal about its financial performance and condition?
- Are the company’s financial statements audited, and if so for how long?
- Who are the top 20 customers and what revenues are generated from each of them?
Why Due Diligence is important?
Due Diligence process allows investors and potential buyers to get a clear picture about the business on sale, and pinpoint the red flags and even show the opportunities. By evaluating the whole business, identifying its assets and liabilities. Due diligence enables companies to undertake M&A decisions based on an informed points of view.
What are the challenges of Due Diligence?
- Asking the right questions to extract the information needed
- Time- consuming process
- Miscommunication between the buyer and the seller
- Lack of expertise
- Can get expensive
The Steps of Due Diligence
How long will Due Diligence take?
If delegated to an efficient, dynamic team preferably a Third-party specialized in this diligency. The process should take from 60 to 90 days. Ultimately, you want to close the deal as soon as possible, while also being thorough.
What are the data requirements for the Due Diligence?
- Corporate Matters
- Governmental regulations and compliance with the law
- Material Contracts
- Tax Matters
- Production Related matters
- Technology/intellectual property
- Employees/Management issues
- Related party transactions
- Marketing arrangement
- Competitive landscape
- Strategic fit with the buyer
Bowarr Management DIFC, have years of experience in corporate inspection and Due Diligence in the UAE. We provide Due Diligence services tailored based on your needs and the size of the targeted business.