DUE DILIGENCE
All About Due Diligence
Meaning :- Due diligence is a process of thorough and objective examination that is undertaken before corporate entities enter into r transactions such as mergers and acquisitions, issuing new stock or other securities, project finance, secularization, etc.
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Type of
Due Diligence:-
The type of due
diligence totally depends on the type of transaction and what is the need of
Stake holder..
Due diligence may be of following types:
Due diligence may be of following types:
· Commercial due diligence – Review
of industry, market, and business model of the issuer.
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·Financial due diligence– Review
of taxation , financial position of company,policies and other
internal controls.
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Reputation due diligence – Review of credit worthiness and reputation of individual counter parties..
Legal due diligence – Review of documentation to identify potential legal issues that may be risks/impediments to the
Reputation due diligence – Review of credit worthiness and reputation of individual counter parties..
Legal due diligence – Review of documentation to identify potential legal issues that may be risks/impediments to the
(i)transaction or
(ii) in the
general operations of the issuer, that may affect the value or
consideration in connection with the transaction.
What is the need for Due Diligence
o Identify issues
relating to structuring and documentation.
o Identify legal and contractual impediments. Confirm / verify representations and warranties
o Undertake processes to verify representations and warrants being provided.Validate Business Plan
o Examination of issues and key areas that need to be addressed in the business plan and determining the impact of the same on the proposed transaction.
o Identify, understand and if possible quantify risks and develop strategies to minimize the same. Transaction Management
o Formation of suggestions and solutions to deal with issues.
o Depending on the risks identified, place the client in a better position to negotiate or adjust the cost of the acquisition or tailor the warranties and indemnities
.
.
o Identify legal and contractual impediments. Confirm / verify representations and warranties
o Undertake processes to verify representations and warrants being provided.Validate Business Plan
o Examination of issues and key areas that need to be addressed in the business plan and determining the impact of the same on the proposed transaction.
o Identify, understand and if possible quantify risks and develop strategies to minimize the same. Transaction Management
o Formation of suggestions and solutions to deal with issues.
o Depending on the risks identified, place the client in a better position to negotiate or adjust the cost of the acquisition or tailor the warranties and indemnities
.
.
End use of
Due Diligence:-
o Identification
and mitigation of risks in light of market practice and legal requirements.
o Changes in structure of the transaction.
o Price adjustment.
o Conditions precedent.
o Representations and warranties.
o Verification of disclosures.
o Retention of purchase price.
o Indemnity.
o Conditions after closing thetransaction.
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o Changes in structure of the transaction.
o Price adjustment.
o Conditions precedent.
o Representations and warranties.
o Verification of disclosures.
o Retention of purchase price.
o Indemnity.
o Conditions after closing thetransaction.
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Also Download the
format for due Diligence report here
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