The term Due Diligence is a broad one. In simple terms, it is defined as the process of “completing your homework” before initiating a process, hiring an employee, buying a company’s stock, investing finances in a project, and more. It is the exercise of caution by an individual or an organization before getting into any sort of agreement with the other party in order to prevent any undesirable consequences or potential losses in the future.
Several processes encompass due diligence. Human rights, international law, business, environmental regulations, all have their exclusive due diligence processes. In terms of business alone, due diligence process is employed during mergers, acquisition of business, before investing in a project or product, and stocks analysis. Although It is important in all aspects, this article looks into the process of due diligence in merger and acquisition specifically
Due Diligence in Merger and Acquisition (M&A)
The process of merger or acquisition is a common one. A business buys another business or a certain company merges into another one. This is a long and complicated process where the buyer of the business or potential owner needs to see whether this merger is a good idea or not. A business will not invest in merging a company or business that is not doing very well, as its losses will eventually become a burden on the owner company. To eliminate such a possibility, and analyze the seller business, due diligence process is conducted. There are several processes involved in a successful due diligence in M&A process.
Gathering a Team
The most important prerequisite for due diligence in M&A is to appoint accountants, auditors and lawyers who are expert in this field. Not any accountant can perform a successful due diligence process. The same is for the lawyer. The buyer business needs an expert team of only the most skilled professionals. In otherwise case, the entire process can be a downhill trip.
Collecting Important Documents
The due diligence team gathers a list of documents required for a detailed analysis. Important company documents such as corporate records, details of transactions, stocks, stakeholders, shares, and other information such as size or scale of business, number of employees, etc. is needed. The accountant and lawyers review these documents to check the overall health of business. They identify any discrepancies, look for receivables or payables, and check how and where the business has been performing transactions. The lawyers look into the legal matters. They see the shares, terms of stakeholders, any legal dispute going on etc.
Review of Information Provided
In case the buying company has any questions, the selling company addresses and answers them. During due diligence in M&A, This process needs accurate completion. Otherwise, the deal may not close. The buyers can request any additional information, explanation on a certain information provided, and identify whether the answers are satisfactory. During the review process, the accountants and lawyers identify any issues or potential threats they may have identified during their analyses.
Conducting Meetings
To clear out any confusions and explain things better, the two parties can arrange meetings. Meetings speed up the review process as they provide an opportunity to both parties to discuss and resolve any confusions. Meetings during due diligence in M&A reduce the time required in sharing documents and information.
Compiling Final Report
The concluding step is compilation of a final report. This report outlines the problems found during the due diligence process, and mention satisfactory area or practices. If the report has more pros than cons, the deal closes and the merger or acquisition is initiated successfully. If the buyer business identifies problems or potential threats, it may not proceed with the M&A.
About BS Auditing
BS Auditing of Accounts provides expert consultations in due diligence processes and other risk and compliance matters. We have skilled professionals who excel in conducting it in mergers and acquisitions, and all related processes. Book your consultation today for a successful merger venture. For detailed guidance and assistance, feel free to contact us:
• Office # 0641, Tamani Arts Offices, Business Bay, P.O. Box 111390, Dubai, UAE
• +971 4 570 7357
• +971 58 108 5690
