Due Diligence

Introduction
M&A’s involve a huge investment of financial resources.

No buyer will like to loose money through a bad deal.

To evaluate the commercial viability of the deal, the buying company undertakes a process
known as due diligence.

While due diligence is not an insurance against a bad deal, it certainly provides enough assurance
that the deal is per se not bad.

DD is also described as the process of investigation performed by investors into the details of
a potential investment, such as examination of operations and management

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Need for Due Diligence
Helps to know the strengths and weaknesses of the business one is buying.

It gives a fair value of the investment to the potential investor, thereby increasing his bargaining power.

• Once the process of Due Diligence is completed and the investor gets a fair idea of what he is getting involved in, he has the following
options: -
• Withdrawing the deal
• Adjusting the value of the investment.
• Going ahead with the deal as quoted by the vendor.

It helps in identifying the hidden irregularities existing in the business which are hidden.

It is an effective tool for ensuring that the prevailing system of checks works. A system is something that
demands periodic or even constant monitoring. It is best done through due diligence.
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Transaction requiring DD

M&A PARTNERSHIP JOINT VENTURE

AND
COLLABORATIONS

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Parties involved in DD

LEGAL PROFESSIONAL FINANCIAL OPERATIONAL

PROFESSIONAL PROFESSIONAL
Parties interested in DD

Employees Trade unions Shareholder Vendors

s

Customer Govt. Society

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 Steps in DD
Planning
• Defining Scope
• Deciding focus area
• Finalizing team structure &
Data Collection Data Analysis
resp.
• Defining time schedule
• Communicating information
requirements
• Finalizing templates & tools
required

Report Finalization DD Reporting

• The conclusion presented
becomes the integral part
of the decision making
and negotiating process
• Fair and independent analysis
• Collection, analysis and
interpretation of financial
commercial and tax information
• Financial information to bidder
• Feedback on auditing

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Types of DD

Financial due Legal due Operational

diligence diligence due diligence
Financial performance Scrutiny of all the legal Onsite analysis of daily
: quantitative and affairs of target company process
qualitative To know the strong & Calculation of companies
weak side, relevant risk EBIDTA margin
It evaluate historical ,
and knowing the Gathering information:
present and future advantages and
prospective results new product or service
disadvantages of target creation, Market,
Competition, Sales,
People
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 Types of DD

Intellectual Information Human

Property due
diligence
Assessing companies' key asset
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technology due
diligence
1. Sending an IT request list 2.
Compiling onsite discovery
process outline 3.Conducting a
review of the requested material
4. Secluding and coordinating
the onsite visit.
Resource due
diligence
Assessing the HR function, HR
services, HR audits.
It helps in assessing :
organizational culture, golden
parachute contracts, benefits and
contribution of pension plans,
retention plans, health and
welfare insurance.
Intellectual Property due diligence
Goals of IP due diligence
Identify & locate IP Ascertain nature and Evaluate validity of Evaluate potential IP Analyze any grant of
asset scope of target target ‘s right on IP infringement IP right made by target
claimed rights in IP
assets

Conducting IP due diligence

Ensure right team Take nothing on Verify all Understand Ascertain impact
construct Ensure it reflects faith information relationship of foreign laws
importance of deal between and deal
documents and
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core business

Understating w.r.t. specific IP asset

Patents Trademarks Copyrights Trade secret
DD insure against M&A Failure

3 phase of DD To avoid disappointment after deal

Prior to deal DD in financial

During DD in organizational report
After the deal DD involving legal compliances
DD involving interaction of contract
DD involving key customer and suppliers

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Compiled and Edited By Dr. Dipti Saraf

DD team
Reasons for DD Fail

Failure to focus on Failure to identify new Failure to allocate

Key aspect opportunities and Risk right resources

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Compiled and Edited By Dr. Dipti Saraf

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