Due diligence makes sure that all parties are informed of the possibility of a transaction. They can then analyze the potential risks and benefits of a possible deal. Performing due diligence can help avoid surprises that could cause a reversal of the deal or trigger legal disputes after it has closed.
Companies generally conduct due diligence prior to purchasing the company or merging it with another. The process usually includes two main components: financial due diligence and legal due diligence.
Financial due diligence is the process of analyzing the company’s assets and its liabilities. It also analyzes the company’s accounting practices and financial history as well as compliance with the law. Due diligence is when companies will often request documents of financial statements and audits. Other areas phishing attacks of due diligence include supplier concentration and human rights impact assessment (HRIA).
Legal due diligence is a process that focuses on the policies and procedures of a company. This includes a review the company’s status in terms of its legality in compliance with laws and regulations and any legal disputes.
Due diligence can take up to 90 days or more, based on the nature and scope of the acquisition. During this time, both parties often agree on an exclusive agreement. This is a way to prevent the seller from engage in other buyer discussions. This can be beneficial to the seller but could also backfire when the due diligence process has been done poorly.
One of the most important things to remember is that due diligence is an action, not an event. It is a process that requires time and shouldn’t be taken lightly. It is essential to maintain open communication and, if possible to meet or beat deadlines. If a deadline is missed It is important to identify why and what steps can be taken to resolve the issue.
