Due diligence is the process by which you carefully review information before making any major purchases or commitments. It helps you weigh https://realtechnolive.com/what-is-dlc/ the benefits against the risks and make an economically viable and strategic decision.
Due diligence varies depending on the type of transaction, but there are certain steps that must be taken in each case:
Commercial Due Diligence
This includes business operations like customer relationships sales strategies, customer relations, and growth prospects. It is crucial to understand the financial strength of the target business and market position in order to accurately value the deal and ensure it will benefit everyone involved.
Tax Due Diligence
This section examines the tax structure of the target company, focusing on taxes that are not income-based, like usage and sales as well as payroll, property and transfer taxes. It also examines the tax implications on the purchase. This includes how to structure the purchase and how to minimize potential liability.
Representations and Warranties
Prior to a company’s IPO is announced, lawyers and underwriters, as well as the company themselves carry out due diligence to confirm the accuracy of the information it has filed with the SEC. As part of this, the target company is questioned by key employees and the C-suite to discuss everything from product development to intellectual property to revenue projections, all with an eye on identifying potential issues that could impede the deal. This isn’t the exact equivalent of conducting due diligence on customers, but is a crucial step in ensuring that all documents and records are current and complete prior to the DDQ.
