Due diligence is the process of ensuring that all participants in a transaction are informed. This way, they can assess the risks and benefits of pursuing an agreement. Due diligence can help avoid any surprises that could undermine a deal or cause legal disputes after the close.
Companies usually conduct due diligence prior buying an entity or merging it with another. The process is usually divided into two major components including financial due diligence as well as a legal due diligence.
Financial due diligence is the process of analyzing assets and liabilities of a business. It also analyzes a company’s accounting practices, financial history and compliance with the law. Due diligence is when companies typically request documents of financial statements and audits. Due diligence also includes supplier concentration as well as the human rights impact assessment.
Legal due diligence concentrates on a company’s policies and procedures. This involves a review of the legal status of the company in compliance with the law and regulations and any legal issues or liabilities.
Due diligence may last for 90 days or more depending on the type and size of the acquisition. During this period, both parties often agree to an exclusivity period. This prevents the seller from contacting others buyers or from continuing discussions. This is beneficial for a seller but it could backfire in the event that due diligence is not properly executed.
It is important to remember that due diligence isn’t an event, but a process. It is a process that takes time and shouldn’t be done in a hurry. It is essential to keep communication open and, if it is possible be able to meet or beat deadlines. It is essential to comprehend the reason for a missed deadline and what steps can be taken to fix the issue.