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Due diligence is the process of ensuring that all parties are informed about any potential transaction. They can then assess the potential benefits and risks of a deal. Conducting due diligence can prevent surprises that could sabotage the deal or cause legal disputes after it has closed.
Companies generally conduct due diligence prior to purchasing a company or merging it with another. The process typically comprises two main parts of due diligence on financials and legal due diligence.
Financial due diligence is the procedure of analyzing the assets and liabilities of a company. It also focuses on the accounting practices of a company and financial history, as well as compliance with the law. During due diligence, companies typically request copies of financial statements and audits. Due diligence also includes supplier concentration and the assessment of human rights impact.
Legal due diligence is a review of the company’s policies and procedures. This includes a review the company’s standing in relation to its legality in compliance with laws and regulations and any legal disputes.
Depending on the nature of acquisition the due diligence process can last up to 90 days or more. During this period, both parties often agree on an exclusive agreement. This is a way to prevent the seller from engage in other buyer negotiations. This is a good thing for the seller, but it can also be detrimental if due diligence has been conducted poorly.
One of the most important things to keep in mind is that due diligence is a process not an event. It is a i was reading this lengthy process and should not be done in a hurry. It is important to keep communication open and, if feasible, to meet or exceed deadlines. If a deadline is not met it is essential to pinpoint the reason and determine what steps are needed to fix the issue.