Due Diligence - when is it worth?
Effective Due Diligence is key to any successful transaction. Therefore, if you are planning to buy a business, your first step should be to carry out such an investigation to gain an insight into the health of the business in question.
Where did Due Diligence come from?
The term Due Diligence originates from the American interpretation of civil law and came into use around 1933 in connection with the adoption of the Securities Act. In Polish terminology, Due Diligence is assumed to mean 'due diligence'.
Due diligence involves a detailed analysis of a company in order to assess its condition, identify its strengths and weaknesses, and identify potential opportunities and threats that may arise after an acquisition is completed.
Each Due Diligence is a bespoke process tailored to the needs of the buying party, usually covering financial, business, legal, tax, IT, environmental and technological areas.
Want to avoid potential risks associated with a planned capital transaction?
Due Diligence carried out by experienced experts allows you to get a holistic view of the company and the true value of the business. At JP Weber, we offer the following studies in the area of Due Diligence:
- Financial Due Diligence;
- Legal Due Diligence;
- Tax Due Diligence;
- Vendor Due Diligence (Sell-Side);
- Exit Readiness (Sell-Side);
- Operational and technological Due Diligence.
What documents are needed for Due Diligence?
We verify absolutely all company documents generated during the provision of services. In particular, we analyse the following documentation during the examination:
- company financial and accounting documents;
legal documents
analyses of the company's sales and profit margins (so-called management reporting / management accounts);
permits and accreditations held
commercial contracts
internal regulations;
documents relating to any disputed issues;
documents relating to property rights and intellectual property;
personnel documents, including payroll and salaries and rules and regulations;
declarations and other tax documents.
We define the full list of documents needed after the initial verification of the company and the commissioning of the service.
How long does Due Diligence take and what is the result of the work?
Due Diligence can take a few days or extend to several weeks. It all depends on the size of the company, the industry in which it operates, the complexity of the operation, as well as its age, the documentation gathered and the number of transactions. At the beginning of each process, we establish guidelines for the period and documents to be investigated, which allows us to estimate the duration of the analysis.
The outcome of the Due Diligence carried out is a report with the results of the work, i.e. a summary of the analyses carried out, key observations, risks identified, ways of mitigating the risks, impact of the risks on the valuation. The basic report is a narrative report that summarises each key area analysed / document reviewed, which affects the comprehensiveness of such a document. The second type is the so-called red flag report (or red flags report), which is a more condensed document and describes the most significant risks associated with a given company, along with potential recommendations on how to minimise or address them in a transaction.
Due Diligence - is it worth doing such research?
Due Diligence carried out by external experts provides an objective look at the company being acquired, its strengths and weaknesses. Conclusions from the conducted Due Diligence help the investor to make the right decision as to whether and in what amount it is worthwhile to engage funds for the purchase of a given company, as well as provide an argument in negotiations concerning the final transaction price. In addition, the due diligence report is a good basis for determining the company's future growth strategy after the transaction is finalised.
The outcome of the Due Diligence carried out is a report with the results of the work, i.e. a summary of the analyses carried out, key observations, risks identified, ways of mitigating the risks, impact of the risks on the valuation. The basic report is a narrative report that summarises each key area analysed/reviewed
Due Diligence can reveal that, after an in-depth review, a company that originally seemed very attractive to an investor is fraught with a large number of risks that will affect their purchasing decisions.
Due diligence provides an insight into the company's situation and thus allows one to enter not only the transaction process, but also:
- assess the risk of exiting into other markets;
- expand the business;
- expand your customer base;
- invest in new products or services;
Do you want to sell or buy a company?
Write to us and describe what type of services you need. If you are unable to identify your needs, we will be happy to meet and discuss your investment plans.
We will advise you on what type of analysis you need to do to take further steps.