The type of due diligence required will vary by Find Out More the company, industry and the nature of the deal. Its purpose is to discover any unanticipated issues that could impact negatively the deal and the interests of the parties.
During due diligence, buyers examine the financial records of the target company, focusing on the accuracy and completeness of the numbers in the Confidentiality Info Memorandum (CIM). It also explores the assets of the target company — checking inventory and fixed assets(opens in a new tab) such as vehicles, machinery and office furniture based on appraisals, permits, licenses surveys, mortgages and leases. A buyer will also conduct a thorough analysis on a target’s deferred expenses (opens in new tab) as well as pre-paid expenses (opens an entirely new tab), and receivables (opens new tab).
Operational Due Diligence(opens in an entirely new tab) involves analyzing the business model along with the culture, leadership, and environment of a company. This includes assessing a company’s capacity to thrive in its marketplace and the strength of its brand. It also evaluates the company’s capacity to achieve profits and revenue goals. Additionally operational due diligence involves looking into a target’s human resource policies and organisational structure to determine risks posed by employees like severance plans and golden parachutes(opens in new tab).
The risk assessment is the core of any due diligence process. It includes potential financial and legal risks as well reputational issues that could arise from the deal. A thorough due diligence process identifies and mitigates these risks, thus ensuring the success of a deal.