Thursday, May 28, 2020

Due Diligence

Although a well-run Due Diligence program cannot guarantee that a business transaction will be successful, it may dramatically improve the odds.

Due Diligence is used to investigate and evaluate potential business opportunities. It includes investigation into all relevant aspects of the past, present, and predictable future of the operations of the target business, function, or company. Initial data collection and evaluation begins when a business opportunity first arises and continues throughout the talks. Formal Due Diligence is typically conducted after the parties involved in the proposed transaction have agreed in principle on a deal, but prior to the signing of a binding contract.

The focus of formal Due Diligence is generally:

  • Confirmation that the opportunity is in fact what it appears to be
  • Surfacing potential problems before committing to the transaction so as to either allow the resulting issues to be worked and resolved, or to avoid a flawed transaction
  • Obtaining information that will be useful for valuing assets, confirming representations made, and negotiating final pricing for the deal
  • Validating that the transaction does not contain any 'hidden' obstacles to achieving the underlying strategic purpose(s) for which it is being made
  • Identifying the risks associated with achieving a successful transaction, and beginning the risk management program for completing the transaction
  • Verification that the transaction complies with the acquirer's investment or acquisition criteria.

The Sophic Group can help companies:

  • Structure the initial data collection and evaluation effort for opportunities under consideration
  • Build checklists of risk elements and potential mitigations to be investigated
  • Prioritize risks and select the risks on which to focus the formal Due Diligence effort
  • Execute the formal Due Diligence program to a short timeframe
  • Evaluate the findings of the Due Diligence program and identify options for proceeding.

Risk can only be managed through Due Diligence, it can never be eliminated.  Success can not be guaranteed; it can only be made more likely.

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