Due diligence is an essential element of any partnership, investment or business deal. It is a thorough examination of the financial records of a company and compliance with laws, and any potential risks.
A due diligence checklist can be used to guide conversations, discover obstacles to M&A deals quickly, and help stakeholders to concentrate their attention on structure, strategy, and execution. A due diligence checklist reduces risk by ensuring all parties are on board with the scope of the investigation, as well as the required documentation.
The type of documents to be included in due diligence requests will differ based on the nature of the transaction. However, there are a few fundamental elements that all M&A due diligence requests should include:
Most M&A due-diligence reports require detailed financial reports from the past three years. These reports help provide a complete image of a company’s financial situation and highlight any areas of opportunity to grow.
Other things to take into consideration are the target’s financial obligations as well as its capital structure. Other areas to be considered include a thorough evaluation of the management team internal processes, the technology infrastructure and supply chain.
A complete due diligence checklist will also examine a company’s environmental health and safety practices as well as any regulatory violations. It should also examine the company’s stance regarding intellectual property rights and how it plans to handle a data breach. A due diligence assessment should also look at the company’s contingency plans and disaster recovery plans.