is often defined as “research and analysis of a company performed in preparation for a business acquisition.”
Ultimately, due diligence is the process of being sure, before a transaction is finalized, that things are as they appear. For someone considering a merger or the purchase of a business, document review and the answers to due diligence questions are critical. It is a complex, time-consuming process, but with so much on the line with any merger or acquisition, neither buyer nor seller wants to make a major decision without all of the information.
During the due diligence process, an often lengthy list of documents should be provided. The list of documents should cover a range of areas, including:
- Legal structure
- Tax records
- Insurance policies
- Organizational structure
- Personnel policies
- Capital and real estate
- Contracts, licenses, agreements and affiliations
- Technology and intellectual property
- Financial statements
- Current or potential legal liabilities
- Marketing materials
The due diligence process is growing in importance. While aspect company’s financial condition and information are key components, the due diligence process should also consider organizational items. To address and evaluate all of the areas of the due diligence process, assemble an experienced, knowledgeable and committed team. Work with your team, including your business intermediary, to review and evaluate the documents and information you receive. Be sure that you get all of the information you need, but don’t assume that you will find something wrong.
Although the due diligence process may consume significant time and energy, it is a critical part of any transaction and should be considered the foundation of the entire deal.