Overview of Due Diligence

Due diligence is an inspection and risk assessment of an upcoming business transaction basically; it is a background check to make sure that the parties to the transaction have the required information they need, to proceed with the transaction. A proper due diligence is required to reveal misrepresentation and fraudulent dealings in a major business transaction.

Due Diligence is the process by which confidential, legal, or financial and other material information are exchanges, reviewed and appraised by the interest parties who are going to enter into a Business transaction. Due diligence often refers to the in-depth research and study being done before signing an agreement or a business with a party.

Objective of Due Diligence

The objective of due diligence is to identify problems within the business, particularly those matters which may give rise to unexpected liabilities in the future. The main objectives of conducting Due Diligence are-

When Due Diligence is required?

Mergers and Acquisitions:

Due diligence is done from the perspective of the seller, as well as the buyer. While the consumer looks into the financials, litigation, patents, and a whole range of relevant information, the seller concentrates on the experience of the buyer, the financial abilities to complete the transaction, and the ability to fulfil responsibilities taken.

Partnership:

Due diligence is done for necessary alliances, necessary connections, business combinations, and such other alliances.

Joint Enterprise and Collaborations:

When one company joins hands with another, the reliability of the company is a subject of concern. Assuming the other company's stand includes the adequacy of supplies at their end.

Other than that, there are certain transactions that requires proper Due Diligence-

• Strategic Alliance
• Business Coalitions
• Outsourcing Agreement
• Technology or Product Licensing
• Joint venture through technical or financial Collaboration
• Venture Capital investment
• Public Issue.

Types of Due Diligence

Due Diligence – Focused Area

Below mentioned are the key factors to be kept in mind while conducting Due Diligence-

• Clear about the party’s expectation in terms of business revenue, profits, and the profitability of the target company.
• To examine whether the related parties have resources to make the business succeed. Also, whether the party are willing to put in all the hard work required for the new venture.
• Consider whether the business gives concerned party the opportunity to put the skills and experience to good use.
• The concerned parties must also focus on Competitors and Industries, valuation multiples, Management and ownership, and risk factors.

Benefits of Due Diligence

Due diligence is needed so that the entity is well conscious of all the essential items like:-

Administration and Ownership

Analysis of who runs the Company

Capitalization

Examining how large and volatile is the Company and market. A contrastive analysis of both of them is needed.

Business Competitors and Industries

Research and compare the boundaries of competitors for a better comprehension of the target Company

Balance Sheet Review

This helps in interpreting the debt-to-equity ratio.

Revenue, Profit and Margin Bearings

To examine if there are any recent trends in the figures which may be rising, falling or stable?

Risks

It enables to learn industry-wide and Company-specific dangers, and all the checking if there are any on-going risks and trying to predict any futuristic unforeseeable threats in the future.

Capital History/Options and Probabilities

How long has the Company been dealing? For a short- term or long-term? Has there been a steady stock price?

Expectations

To maximize the profit for the future.

Procedure Involved in the Due Diligence Process

There are 3 stages in the Due diligence process-

I. Pre-Diligence Process

Pre-Diligence Process is the initial step for Due diligence process and is primarily the activity of management of paper works and people.

• Firstly, the investor has to sign the Letter of Intent and the Non-Disclosure Agreement with the Target Company.
• Receiving the Document from the company and review of the same with the checklist of Documents already submitted to the company.
• Recognizing the issues.
• Arranging the Documents required for a Diligence.
• Creating a Data Room.

Differences between Due Diligence and Statutory Audit

In India, companies statutorily required to get their accounts audited by an unconventional Chartered Accountant. In some cases, companies needed to carry out an internal audit relating to their method. Due diligence is quite distinct from statutory audits. The difference between Due Diligence and Statutory Audit is given below:-

Tax Outline: Perspective on Due Diligence

Tax due diligence represents a prominent role in M&A determination; however the tax usually is not the primary concern in the context of M&A deals. Customarily, tax due diligence is carried out to explain more about the tax profile of the target and to reveal and quantify any tax exposures. Nevertheless, tax due diligence also comprises recognizing any tax upsides which may be accessible to the goal. It also supports in distinguishing and developing an appropriate procurement structure for the deal in question. The buyer needs to consider while negotiating for the tax protection to ensure that it does not affect the commerciality of the business for the seller. A tax due diligence is traditionally taken out to:

• Verify the descriptions made by the seller at the time of pre-deal discussions concerning tax matters.
• Verify the tax assumptions presented by the buyer in valuing the target.
• It is distinguishing any material tax publications that may be remaining with the target, including ill symptoms of such tax exposures.
• Recognize any material upsides such as possible tax benefits that are being maintained by the end.
• Structure the venture in a tax-efficient practice.
• Evaluate the availability of tax losses, tax credits, and other tax assets.
• Guarantee the adequate protection mechanism for the buyer.

Fastzeal Support

FastZeal Conducts Inquiries, Data Rooms, and Searches for Due Diligence Surveys. We help our clients in preparing the questionnaire, Conducting Interviews with Beneficiary Management, Preparing Internal and External Public Registers. We provide various services related to Due-Diligence.

Questionnaire

• On instruction, we will present a due diligence questionnaire to the investment recipient, which is intended to extract all relevant material data about the target investment.
• The questionnaire is customarily based on a specific pro forma but will be tailored to the particular business and sector. The investment recipient's lawyers will continually coordinate the acknowledgments to the questionnaire, with specialist lawyers/advisers dispensing with answers appropriate to their area. It is also common practice that in a lot of cases the directors and senior administrators may compile and present this information to us. ,

Interviews with Beneficiary Management

Even as the administration is always best placed to present this information on the target's enterprise and prospects, we likewise will be handling management interviews, as we see this as an indispensable part of our 'due diligence' process.

Internal and External Public Registers

Public records may, though, not be entirely up to date, and this will form part of our crosschecking structure everywhere the due diligence inquiries. External explorations are not confined to:-

• Examinations where the target, investment recipient of the investment recipient's guarantor is a company,
• Organizations registrar records, Bankruptcy and Court records,
• Wherever the guarantor or the target partner is an individual, a research of the 'Individual Insolvency Register' for current and fresh bankruptcies, current individual voluntary compromises, debt relief orders, and current bankruptcy limitations orders and projects,
• The records of trademarks, patents and recorded/certified designs prepared by Intellectual Property Offices,
• Land registrar searches,
• Commercial learning providers such as Dun & Bradstreet,
• The target's websites and extensive searches of the goal through an internet hunt and any other genuine searches and information requests.

Why Fastzeal?

Because We Consist Of

• Stamina energy, and confident of resolving issues and working as per timetables and deadlines
• Commercial Recognition combined with practical experience and an interrogative mind
• Identify Key Drivers to ensure a concentrated approach, be alert to problem areas and inequalities
• Presentation Personal skills and an ability to express clearly, and without ambiguity
• Related Expertise to provide targeted and useful due diligence feedback that adds value the business.