Due diligence is a phrase frequently used in merger and acquisition processes where various parties are engaged. Usually, a conventional merger and acquisition procedure includes due diligence services.
Due Diligence Services is a procedure in which a lawyer, accountant, financial institution, or other independent third-party consultant conducts the full process of investigating the possible acquisition or transaction.
The consultant or party would need to communicate with a variety of authorities, including those on the seller’s end, as well as those in government, the registrar of corporations, and the land authorities. Previous information from the seller’s side would be obtained as part of the transaction through this method.
MAIN AUTHORITY FOR DUE DILIGENCE
- Companies Registry and Ministry of Corporate Affairs- For Company Law and other related matters.
- Competition Commission of India- For Competition and Anti-Trust Related Issues.
- Income Tax Authorities- For Taxation and Other Tax-Related queries.
- The Reserve Bank of India- For Banking and Payment Related Queries.
- State and Municipal Bodies- For Seeking Registration Clarifications and Any other requirements on the license.
TYPES OF DUE DILIGENCE SERVICES
- DUE DILIGENCE ON FINANCE: Financial The buyer would do due diligence, which is an investigation into the company’s financial and accounting operations. To perform this type of due diligence, financial professionals and chartered accountants are typically recruited. The buyer would gain a good understanding of the company’s financial and revenue status by performing financial due diligence. Looking into the company’s finances to ascertain the true and true position is crucial when performing financial due diligence. For instance, when conducting due diligence, the business must review the balance sheet, profit and loss account, and other previous transactions.
- LEGAL RESEARCH DUE DILIGENCE: This form of due diligence would investigate any form of legal issues faced by the seller or the asset in question. If the selling company or the asset being sold is under any form of litigation, then this would be investigated by the buyer. In a merger and acquisition process, usually, the buyer would pay more attention when it comes to legal due diligence. If there are any forms of compliance issues with the company, then this would be checked. Apart from this, if any subsidiary or firm of the seller has any form of debt, then, the concerned authority would be contacted. Hence, this form of due diligence is carried out to understand if there are any form of legal disputes faced by the seller. Usually, this due diligence would be carried out by transaction lawyers.
- ENVIRONMENTAL DUE DILIGENCE: This form of due diligence is carried out to understand if the company is complying with relevant environmental compliances. For example, this form of due diligence services would ensure that the company is complying with emissions and carbon levels. Any company which has an affluent or industrial unit would have to comply with the process. The buyer will have to investigate if the industrial unit has followed all the compliances.
- ASSET DUE DILIGENCE: In a Merger and Acquisition process, there are two parties- The buyer and the seller. Apart from them, other parties assist in carrying out a seamless process.
- ADMINISTRATIVE DUE DILIGENCE: This type of due diligence service would entail looking into a company’s administrative structure. The administration encompasses not only the organizational hierarchy but also the day-to-day operations of the business. This type of due diligence would examine various company procedures that are used. Administrative due diligence, however, would not consider any kind of strategic alliances or agreements the seller’s business has made.
- MANAGEMENT DUE DILIGENCE: This type of due diligence service would entail looking into the organization’s management. Executives holding the following positions would make up the management of an organization:
- Principal Executive
- in charge of finances
- Director of Technology
- any additional officers who hold executive positions
Therefore, this type of due diligence service would investigate the business dealings of the company’s management.
7. COMMERCIAL DUE DILIGENCE: This type of due diligence service will take the business’s commercial trends into account. Here, a particular aspect of the company’s strategy would be examined. The company’s aims and goals would be examined, and if there were any deviations, those would be looked at. The buyer would investigate any strategic partnerships or agreements that the selling firm or any of its subsidiaries may have entered. Since it examines the organization’s long- and short-term goals, any type of third-party consultant can typically perform these due diligence services. This type of due diligence allows a company (buyer) to comprehend the strategic objectives.
DUE DILIGENCE SERVICES PROCESS
ENTER INTO CONTRACTS AFTER INSTRUCTIONS
The key terms of the acquisition agreement: would be included in the agreement’s headings of terms. This would also cover the duration and timeframe of the acquisition agreement.
Confidentiality Agreement: The confidentiality agreement would stipulate that neither party to the contract may violate any of its terms. In the event of a breach, either the buyer or the seller would have the option of calling off the deal. In addition, the buyer or seller may file a lawsuit if the contract’s terms are broken.
Lockout Agreements: These contracts could provide that the seller has no rights to negotiate with any other purchasers throughout the buying time.
DUE DILIGENCE QUESTIONNAIRE
- Any contracts or services that the business has undergone Any warranties or guarantees pertaining to a specific asset under the control of the business.
- whatever more intellectual property that the corporation controls
- Any additional inquiries that must be made to the vendor
- Contracts and provisions with suppliers
- Directors and shareholders list
- Pay and Benefits Packages for Employees
- Any type of Significant Negative Change in the Company