If you are planning to buy or sell a business, as well as to merge (acquire) a company, then you need a comprehensive check of the investment object — Due Diligence.
The term Due Diligence was introduced into legal circulation in the United States at the beginning of the 20th century. Initially, it meant the procedure for disclosing information by a broker to an investor about a company whose shares are traded on the stock exchange. Currently, this term refers to the collection and analysis of information in order to assess the state of a business object and minimize various risks associated with investment. In various special fields of knowledge and practice, this term may have other meanings.
Classification (typing) due diligence can be carried out according to the nature of the object of study. In this regard, stands out:
Conducting due diligence — one of the functions of a comprehensive business research. The procedure helps to establish a trusting relationship in connection with the conclusion and conduct of a major transaction between counterparties. Due diligence is usually carried out when buying a business or part of it, when buying large objects (real estate, land), when selling a business, as well as when merging companies.
First of all, due diligence is aimed at an objective and full-scale verification of the planned transaction and its commercial attractiveness. In any transaction or investment project, the reliability and completeness of information about the object plays an important role. This allows business partners or investors to evaluate in more detail all the advantages and disadvantages of such a project.
Lack of due diligence can lead to poor financial results after a change of ownership, lawsuits and proceedings, tax and financial audits, and other unpleasant consequences.
The purpose of the due diligence procedure — avoid or minimize existing business risks, namely:
All parties to the transaction are interested in the objective and competent conduct of these procedures.
During the provision of due diligence services, the customer can choose an audit consisting mainly of three stages (in some cases two: audit + legal expertise).
The purpose of this stage of work — show the true value of the business depending on the options for its further use (market, investment or liquidation).
The purpose of the audit is to conduct a financial audit, an examination of the company's activities, as well as the allocation of tax benefits and risks.
At this stage, the following work is carried out:
The final stage of the — highlighting potential tax risks and rewards, as well as identifying and quantifying potential tax liabilities that a company has.
The task of the stage is to conduct a legal and legal examination of the company's constituent documents, in order to maximize the risks associated with its purchase.
Lawyers carry out the following complex of works:
Lawyers also evaluate the main contracts of the company in order to identify adverse consequences for the buyer.
Conducting due diligence usually requires an integrated approach. Of course, the complexity depends on the nature of the acquired object. Legal and economic aspects — this is the minimum set of relationships to be investigated in the process of due diligence.
The check can be carried out both by the buyer himself, and with the involvement of consultants and experts. The team must necessarily include financial/accounting and legal staff, but it can also include economists, engineers, environmental experts and other specialists. The successful implementation of the procedure depends on the clear and coordinated work of appraisers, auditors and lawyers, as well as on the timely presentation of reliable information by the seller.
Upon completion of all stages of teamwork aimed at a comprehensive verification of the legality and commercial attractiveness of the planned transaction or investment project, based on the information provided and processed, the performer of the due diligence procedure generates a conclusion that allows investors to draw conclusions and evaluate all the advantages and disadvantages of the analyzed cooperation , so necessary for subsequent decisions. This work should be entrusted to the appropriate specialists. One of such professional teams operating in the international market, — this is Russian-Eurasian Business Broker (REAB).