Due Diligence

The process of due diligence serves numerous functions that benefit both buyers and sellers in a merger or acquisition. Due diligence has several challenges and working through these problems is vital to ensuring that the process and the transaction is performed legally. It is possible to do a large portion of the due diligence yourself, depending on your background, but you should never try to do it solely on your own – Why? Well, There’s an enormous amount deal with.

Types of Due Diligence

There are several due diligence types which are predominantly undertaken by experts to give a deep insight into a particular part of ​​a company and creates a detailed representation of its overall health.

  • Legal – scrutinises commercial documents to check their compliance with the law.
  • Financial – the analysis of company documents to attain information about the financial and property situation of the Company.
  • Tax verifies accounting records and subsequent compliance all declared revenues and costs.
  • Business covers the analysis of the company’s industry and market position, as well as its competition.
  • Vendor is an analysis undertaken by the owner to identify potential transaction opportunities and risks, even before starting talks with investors.

Key Steps in the Due Diligence Process

  • Financial evaluation
  • Evaluating technology
  • Understanding existing and potential customers
  • Analysing cultural and strategic fit
  • Reviewing all existing, pending, and settled lawsuits
  • Assessing regulatory compliance
  • Reviewing general corporate documentation

How much time does Due Diligence take?

Due diligence can last several months depending on the overall size of the company and its activity and the intricacy of business procedures. In general, 30-60 days is normal, but each merger or acquisition is different and dependant on the number of people who are tasked with due diligence.

Who needs to be involved?

Both internal and external experts are required at different stages to help evaluate the deal, and both buyer and seller typically pay for their own team of accountants, lawyers, and other consulting and advisory personnel. The external advisors can make both the buyer and the seller aware of the reasoning behind the other party’s point-of-view in case of a conflict.

These experts should include, and not limited to the following:

  • M&A Lawyers
  • Accountants
  • Bankers
  • Analysts
  • VCs (for larger deals, if outside funding is needed to complete the deal)
  • Specialised consultants

Completion of the due diligence process with the aid of specialised experts enhances the quality of information available to the decision-makers and helps them ask the right questions and take the right step during the M&A process.

People hire a qualified M&A advisor because they need an expert opinion, and the more experience the expert the more valuable he is to you. When doing due diligence alone, without any assistance, you’re allowing emotions to play a big part, eventually leading to a bad outcome.

Venture Corporate Finance is a middle-market M&A advisory firm for clients planning to sell their businesses, raise capital, restructure, or grow with acquisitions. We provide independent advice and bespoke transaction solutions to meet their specific objectives.

For more information on corporate finance and M&A services, contact Venture Corporate Finance.