What is the purpose of conducting due diligence when considering purchasing a target company?
Any due diligence undertaking is conducted in order to minimize risk prior to making an acquisition, investment, refinancing, restructuring, and public listing or similar transaction. A proper due diligence should inform the buyer of any problems with the target that would lead you to abandon the deal and if there are any issues that would lead to a change in the structure, terms, and price of the transaction.
What are the main aspects of conducting legal due diligence?
The process of legal due diligence involves reviewing any legal risks associated with the target including assets and property ownership, Intellectual property, loans, securities, corporate governance, employment, customer and supplier disputes, and any pending litigation. Consideration during the legal due diligence process will be paid to the structural ownership of the target; existing contracts with customers, suppliers and management; adherence to regulations including a history of any breaches, and any insurance claims.
Legal due diligence also typically involves the running of various public record searches to verify if there are any liens against the business, if the corporation is involved in litigation, if there are outstanding executions or writs against any target or if the corporation has filed for bankruptcy.
What are the main aspects of conducting financial due diligence?
Financial due diligence involving reviewing the target’s historic financials including the balance sheet, profit and loss, cash flows, projects and contracts, earnings, assets, and liabilities, and future financial projections.
What are the main aspects of conducting commercial due diligence?
Commercial due diligence involves reviewing factors such as market structure, size and conditions specific to the sector, legislation specific to the sector, competitor analysis, and customer and supplier feedback. This is typically undertaken by the acquisition team which is comprised of business advisers or M&A specialists.
What are the main aspects of conducting operational due diligence?
Operational due diligence refers to the appraisal of key systems and processes, including IT systems, key management team and senior staff, staffing and other HR matters, and insurance and risk assessments. This is also undertaken by specialists in the industry as opposed to lawyers or accountants.
What are the main aspects of conducting human resources due diligence?
Human resources due diligence involves reviewing the target’s compliance with employment laws, employee contracts, and employment related liabilities. Consideration should also be given to post-deal matters and the integration plan from an HR perspective in terms of retention of key talent, communication and integration of company cultures. HR specialists and employment lawyers typically assist here.
