All About Due Diligence |Format|Type|Need
Meaning :- Due diligence is a process of thorough and objective examination that is undertaken before corporate entities enter into r transactions such as mergers and acquisitions, issuing new stock or other securities, project finance, secularization, etc.
Type of Due Diligence:-
The type of due diligence totally depends on the type of transaction and what is the need of Stake holder.
Due diligence may be of following types:
· Commercial due diligence – Review of industry, market, and business model of the issuer.
· Reputation due diligence – Review of credit worthiness and reputation of individual counter parties.
· Financial due diligence– Review of taxation , financial position of company, policies and other internal controls.
· Legal due diligence – Review of documentation to identify potential legal issues that may be risks/impediments to the
(ii) in the general operations of the issuer, that may affect the value or consideration in connection with the transaction.
What is the need for Due Diligence
o Identify issues relating to structuring and documentation.
o Identify legal and contractual impediments. Confirm / verify representations and warranties
o Undertake processes to verify representations and warrants being provided. Validate Business Plan
o Examination of issues and key areas that need to be addressed in the business plan and determining the impact of the same on the proposed transaction.
o Identify, understand and if possible quantify risks and develop strategies to minimize the same. Transaction Management
o Formation of suggestions and solutions to deal with issues.
o Depending on the risks identified, place the client in a better position to negotiate or adjust the cost of the acquisition or tailor the warranties and indemnities
End use of Due Diligence:-
o Identification and mitigation of risks in light of market practice and legal requirements.
o Changes in structure of the transaction.
o Price adjustment.
o Conditions precedent.
o Representations and warranties.
o Verification of disclosures.
o Retention of purchase price.
o Conditions after closing the transaction.
Also Download the format for due Diligence report here
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