Due diligence is a critical part of any business deal, investment or partnership. It is a thorough examination of all aspects of a firm, including its financial records, compliance with regulations and risks.
A due diligence checklist can be used to guide conversations, discover obstacles to M&A deals quickly, and allow stakeholders to focus their attention on strategy, structure, and execution. A due diligence checklist can reduce risk by ensuring all parties are in agreement with the scope of the investigation and the required documentation.
The due diligence request might include different documents based on the nature and magnitude of the transaction. However, there are some fundamental elements that all M&A due diligence requests should include:
Comprehensive financial reports that cover the past three years are required for most M&A due diligence reviews. These documents give an accurate picture of the company’s financial condition and can help identify areas of growth.
Other aspects of due diligence include the target’s ability to meet financial obligations and the strength of its current capital structure. Other areas of interest could include a thorough evaluation of the management team, internal processes, technology infrastructure and supply chain.
A thorough due diligence checklist should examine a company’s environmental safety and health practices including any regulatory violations. It should also address the company’s stance on intellectual property rights and the way it intends to handle the possibility of a data breach. A due diligence audit will also examine the company’s contingency plans as well as disaster recovery plans.
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