Due Diligence

Due Diligence

Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.

It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for an acquisition. The theory behind due diligence holds that performing this type of investigation contributes significantly to informed decision making by enhancing the amount and quality of information available to decision makers and by ensuring that this information is systematically used to deliberate on the decision at hand and all its costs, benefits, and risks.

Process:

• Submit your documents to run security, credential and reputation checks.
• We will analyse the projection and do a market opportunity assessment.
• After technical analysis, We will engage with you to assess the risk involved do.
• We will sit with investor expert panel and assess the key opportunities and risk (SWOT and GAP analysis).
• We will continuously evaluate the situation and strategically advice you on next actions.

How does due diligence work?

A company who looks to gain receive the decent return from funding round must conduct proactive and continuous due diligence. Continuous review, planning and correction every step of the way from interest to investment and even the day to day to management of investee company.

Categories of Due Diligence

General Due Diligence

Any individual can follow the process of due diligence. A person in his daily life can also adopt due diligence by planning for the day according to the weather/temperature, and deciding whether the transport will be regular or changed. He will also look and decide on the relevant factors

Due Diligence in investment

It helps an investor in finding out potential risks when investing. Analysing all the factors will make him invest in what is best for him

Due Diligence in business

If an individual/ company is planning to enter a partnership, merger, or purchase another business due diligence should be applied. This will give them a clear picture of the business’s current status, and they can make a correct decision

Due Diligence in negotiation

When entering an agreement all parties must put forward their understanding and expectations to safeguard everyone’s interest. This exercise is also a form of due diligence.

Types

Administrative:This helps an individual to keep track of various facilities/ units functioning under the company. This gives him a clear picture of the operational costs, number of employees, and an idea of the future costs to be incurred to meet and expand the company’s targets in case he purchases it.

Financial : It checks whether the financial details shown in the Confidentiality Information Memorandum are accurate.

Asset : This involves all information related to a fixed asset. The documents related to fixed assets like lease agreements for equipment, real estate deeds, mortgage, title policies, use permits, and all sales and purchases of significant capital equipment too are analysed.

Human Resources : It involves several labour laws and policies. Under this, an analysis is made of the total number of employees, current salaries, bonuses paid during the past 3 years, and years of service. HR policies regarding employee leaves, employee problems and grievances like wrongful termination, sexual harassment, discrimination, legal cases against current or former employees, any financial impact of such labour cases, employee health benefits, and insurance policies are also taken into account

Environmental : A company is expected to follow all major environment-related laws, so environmental audits are carried out on the properties owned or leased by the companies. Environmental due diligence is a major assessment issue. The following documents are required for this evaluation a)All environmental permits, licenses, and validations

b) Copies of notices and orders set by environmental protection agency (state) and local regulatory agencies.

It is also checked whether the company is precisely following the current rules and regulations regarding environmental protection.

TAX

Under this, the documents of tax liability, payment of taxes by the company, and their proper calculations are looked into. The status of any tax-related pending cases too is confirmed with the tax authorities, and documents of tax compliance and verification too are included.

Intellectual Property

Intellectual property (IP) is one of the company’s most valuable assets since they can use it to monetise their business. Under this due diligence, forms and documents related to copyright, trademark and brand names, patents and patent applications, any pending documents required to be cleared, and any pending cases regarding violation of intellectual property by or against the company have reviewed the findings documented.

Legal

It is a must. Under this, the following are examined and reviewed

• Copy of Memorandum and Article of Association
• Minutes of shareholder meetings (past 3 years)
• Minutes of Board meetings with an attendance sheet and notices (past 3 years)
• Copy of share certificates
• Copies of guarantees to which the company is a party
• Licensing or franchise agreements
• All the material contracts and loan agreements

Customer’s Due Diligence

This gives a close insight into the target company’s customer base. Under this, a list of top customer companies and of all the customers with their assets, service-related agreements and insurance policies covering assets and capitals, current credit policies, customer satisfaction points, and related reports (past 3 years), a list of customers lost (within 3 to 5 years) are closely examined.