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Due Diligence is the investigative process undertaken by purchaser, seller or business manager to ensure the following:
- Any representations by seller or existing management are correct and not misleading.
- Any representations made to prospective purchasers are correct and are appropriate to represent the correct facts, reducing any potential for claims of misrepresentation.
- There are no potential ‘skeleton in the closet’.
- Simply a ‘Health Check’ on existing businesses and current processes as necessary.
The due Diligence process is more than an audit, the scope is more comprehensive in that it targets issues a company may encounter rather than just a historical review of past performance. It will obviously include a review of past performance; however the priority is more towards the operational capability and sustainability of the business performance going forward.
In any due diligence assignment, the end report is unique to the situation faced by the business in question, and because of the many possible prevailing circumstances, the approach must be flexible and backed by practical experience in such assignments.
This flexibility is critical to ensure all possible factors that may affect future performance are anticipated.
A simple checklist will not be sufficient. We have found that what is required is a practical experience in operating businesses, to ensure all possible factors are addressed.
For example:In one recent assignment while the financials and future sustainability of the target business was satisfactory, the different ‘chemistry’ between the target business and the acquiring business meant that any purchase/merger would have a lower chance of succeeding to the full potential.
With any due diligence assignment experience has demonstrated that often just talking to the staff in both a formal and informal sense can supply useful information, hence it is important that such investigations, especially when on-site are carried out by experienced staff.
In business applications the due diligence process varies for different types of companies. The relevant areas of concern may include, but are not limited to the following:
- Financial – historical, current & forecasts.
- Labour/Union related matters.
- Tax compliance.
- Company Secretarial.
- Market/commercial status of the business.
- Supplier and Client contracts.
- Physical assets & property.
- Intellectual property protection.
- Insurance coverage and liability .
- Debt issues.
- Employee entitlements and claims.
With our experience we can aid in all areas including the following situations:
- Seller can be prepared for what is needed from DD team of purchaser – can help provide it with minimum disruption to the business.
- We can act as ‘intermediary’ for information when the sale/purchase process is confidential, and ensure minimum disruption to the existing business. i.e. staff are not aware the business may be ‘for sale’.
- Our staff are experienced in working alongside incumbent management being sensitive to the emotional issues involved, while still achieving the desired goal. We have worked both sides of the fence.
- We are experienced with the tight deadlines many due diligence exercises require.
Please feel free to call and discuss any aspect that may concern you, always remember that cost of any comprehensive due diligence assignment is a small cost compared with the costs associated with either a bad acquisition or not being aware of potential issues in current business units.