You’ve presented an offer to buy, and the other party has countered. But how do you know if you can trust the information they give you? That’s why it’s important to perform due diligence before you sign on the dotted line for a merger or acquisition.
Importance of Due Diligence
Due diligence matters! Due diligence is simply defined as “an investigation to determine the accuracy of facts,” and this is exactly what it is. As a potential business buyer, due diligence allows you to make an informed decision about your potential purchase. It will enable you to avoid surprises and form a solid, binding deal that works for both parties. And for sellers, due diligence provides peace of mind in knowing that you are selling your business to a reputable individual or company who will be able to meet the needs of your customers and employees.
The due diligence process provides the buyer with a comprehensive analysis of the targeted business. It includes, but it’s not limited to, financial information, management interviews, legal reviews, market assessments, and sustainability. The final deliverable will be a 360-degree view of the company, enabling a better-informed buying decision.
Types of the Due Diligence
- Acquisition due diligence
- KYC (Know Your Customer) Due Diligence
- IPO Due Diligence
- Investment Due Diligence
Acquisition Due Diligence
Acquisition due diligence is an important part of the business buying process. The buyer of the company must conduct due diligence to analyze and ensure that the acquisition will fit into their current business model and overall financial planning. This involves technical, financial, legal, and human resources due diligence.
Acquisition due diligence needs to be performed by a team of professionals so that all of the individual parts can be examined thoroughly for potential risk factors and the outlook for success.
KYC (Know Your Customer) Due Diligence
KYC (Know Your Customer) Due Diligence is a process banks use to ensure they know their customers and who they are doing business with. Banks must do this for government regulations, along with self-imposed controls, particularly in criminal and sanctions-sensitive industries.
Using personal information collected from customers at the time of account opening, KYC Due Diligence cross-checks individuals with lists of criminals or sanctioned persons used by governments worldwide. This ensures that the banks are not held liable for bottom-line loss, penalties, or legal issues due to potential customer fraud or risk.
IPO Due Diligence
Due diligence is the process of evaluating a business as it prepares for its IPO. Also known as pre-IPO due diligence, a financial institution must carry out complete, rigorous, and thorough due diligence to understand the maturity status of the market before a business launches its IPO.
Investment Due Diligence
Investment Due Diligence is essential for investors, either individuals or corporates, as it helps them make informed decisions. It also helps them figure out the potential returns on their investments in the short and long term. Due diligence is of utmost importance when it comes to digital or technology-based investment.
Due diligence is undoubtedly one of the essential aspects of any modern business transaction. However, it requires in-depth research and analysis of individuals and companies involved in a certain transaction. Although it’s always an enticing option to conduct due diligence yourself, the best results can only be obtained from an independent agency specializing in this area. Companies offering due diligence services can help with background check screening, supplier checks, and credit checks.