Thinking of moving forward with a merger or acquisition deal? Make sure you complete proper due diligence first. Due diligence, in its most basic form, is the investigation of a business before moving forward with a proposed transaction.
The process should result in a great deal of information, but the four key points that should be addressed in any thorough due diligence review include:
- Integration. Will the business that is under consideration integrate well into the potential buyer’s business model?
- Benefits. What are the benefits that would come with the purchase of the business under consideration?
- Risks. What are the potential risks?
- Value. What is the estimated worth of the business that is under consideration?
Various team members are needed to conduct a proper due diligence review prior to moving forward with a transaction.
It is important to note that this is not a process that is used solely by a potential buyer. It is important for both sides of the transaction to complete due diligence. Both the buyer and the seller can benefit from a thorough review as the party with the most comprehensive knowledge of the risks that come with a potential deal generally has the advantage during negotiations.
Both parties should also note that the role of due diligence has changed in recent years. Technological advances have led to both benefits and problems with the process. It is common now to provide information electronically, allowing a potential buyer to review the documentation remotely. However, it is often still important to set aside these technological innovations and make on-site visits to get a feel for the assets, culture and working operations of the business prior to moving forward with a deal.