Due diligence is the process of ensuring that all parties are aware of the possibility of a transaction. They can then assess the potential benefits and risks of a potential deal. Doing due diligence can avoid unexpected surprises which could derail the deal or create legal disputes after it has closed.
Companies typically conduct due diligence prior buying an organization or merging it with another. The process typically includes two main elements: financial due diligence and legal due diligence.
Financial due diligence is the process of analyzing a company’s assets and liabilities. It also examines a company’s accounting practices as well as its financial history and compliance with the law. Due diligence is when companies will often request documents of financial statements and audits. Due diligence also includes supplier concentration and the human rights impact assessment.
Legal due diligence focuses on the company’s policies and procedures. This includes a review the status of the company in terms of its legality in compliance with laws and regulations, and any legal disputes.
Depending on the type of acquisition the due diligence process can last up to 90 days or more. During this time the parties typically agree on an exclusivity. This stops the seller from seeking out other buyers or continuing discussions. This is a good thing for a seller, but it could also backfire if the due diligence process was not conducted properly.
One of the most critical things to remember is that due diligence is a process, not an event. It takes time to complete and should never be rushed. It is essential to keep communication open and if possible to meet or pop over here exceed deadlines. It is essential to know the reason for a missed deadline and what can be done to rectify the problem.