Due Diligence

  Due diligence is characterized by a specialized team with expertise in auditing, valuation, financial analysis, and risk assessment, in addition to previous experiences and operations in similar projects.

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Definition of Due Diligence or Due Diligence Reports

  Due diligence involves dispelling the ignorance of the parties involved or using the report for various purposes regarding key and strategic information about the company, its main activities, and related sub-activities. Definition of Due Diligence Reports: Due diligence is the process of verifying, investigating, or auditing a potential transaction or investment opportunity to confirm all relevant facts and financial information and to check anything else brought up during a merger and acquisition (M&A) transaction or investment process. Due diligence is completed before the transaction closes to provide the buyer with confirmation of what they are acquiring.

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Scope of Work

  The scope of work can be expanded to include legal aspects and future forecast studies alongside financial aspects, or it can be reduced based on the client’s requirements for the report and the signed contract between the two parties.

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Importance of Due Diligence

  Transactions that undergo the due diligence process offer greater chances of success and contribute to informed decision-making by improving the quality of information available to decision-makers.

• From the Buyer’s Perspective: It allows the buyer to be more comfortable that their expectations for the deal are correct in mergers or acquisitions. Purchasing a company without conducting due diligence can expose buyers to many unforeseen risks.
• From the Seller’s Perspective: Due diligence is conducted to provide the buyer with confidence. However, due diligence can also benefit the seller, as undergoing thorough financial scrutiny might reveal that the company’s fair market value is higher than initially thought. Furthermore, if errors or violations previously unknown are discovered, the seller can address them before offering the opportunity.

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Reasons for Due Diligence

 

• To confirm and verify information presented during the transaction or investment process.
• To identify potential flaws in the transaction or investment opportunity, thereby avoiding a poor business deal.
• To obtain information that would be useful in evaluating the transaction.
• To ensure that the transaction or investment opportunity aligns with investment or transaction criteria.
• A regulatory requirement for some regulatory bodies and government agencies.

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Costs of Due Diligence

  The costs of undergoing the due diligence process depend on the scope and nature of the work, the fees of the experts involved, and the cost of time, which largely depends on the complexity of the target company. The costs associated with due diligence are easily justifiable expenses compared to the risks associated with not conducting it.