Due Diligence
Due Diligence is a systematic process
of investigating the acquired information in order to determine whether to
carry out the deal or not. The process includes processing quantitative data
and qualitative data. Quantitative data refers to sales, cash flows and other
financial data while qualitative data refers to quality management, internal
control system and so on.
In simple words due diligence is the process where detailed
evaluation takes place. It is the next phase of initial screening.
Process of Due Diligence
The process of due diligence involves six stages which are as follows,
§ Understanding the Transaction.
§ Risk Assessment and Scope.
§ Data Review and Request.
§ Areas of Review.
§ Discussion of Work Progress.
§ Presentation of Results.
Now let us try to understand each point separately
§ Understanding the transaction:
This is the
first phase of due diligence. In this phase a brief information is collected
and understood from advisers and clients. A skilled team is selected in order
to understand the deal in a detailed manner. This phase also includes
understanding the key strategic drivers for acquisition. In this phase the firm
or business tries to understand the requirements they need to fulfill.
§ Risk Assessment and scope
This is the
second phase of Due Diligence. The next phase is to determining the key areas
of risk by collaborating with stakeholders and also determine what is the scope
of the due diligence procedures. This helps to determine the risk associated
with the deal and also the scope of the due diligence.
§ Data Review and Request
This is the
third phase of Due Diligence. In this phase the selected skilled team reviews
the information available for due diligence and asks for more information if
the circumstances demands in order to move ahead.
§ Areas of Review:
This is the
fourth phase of Due Diligence. In this phase reviewing the detailed such as
business overview, accounting & information system, revenue expenses and
assets and liabilities is being carried out.
§ Discussion of Work Progress
This is the
fifth phase of Due Diligence. In this phase meetings are held continuously so
that the issues’ arising from the areas of investigation is being discussed. If
any legal issues comes into picture then consulting the legal adviser in order
to resolve the issues.
§ Presentation of Results
This is the last phase of due
diligence. This is the stage where a summarized report is prepared highlighting
key issues, key trends and final interpretations of the analysis being carried
out. In the report recommendations are given in order to resolve the issues
also. A report is attached which supports the debt financing requirements.
Conclusion
From the above we can
conclude that due diligence is a systematic detailed evaluation process to
assess whether to make an acquisition or not. Due Diligence is carried out in
six phases. Due Diligence is carried out so that the acquisition made is
successful and all the key drivers and strategic objectives and goals can be
meet and also no problem arises in the deals after the deal is committed
neither legal nor internal problems in acquisition company.
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