Whenever companies enter merger or acquisition transactions or going to make an important investment decision, they carry out the due diligence exercise. Due diligence is an audit, inquiry, investigation or review performed to confirm the facts and information in relation to the company being acquired or the investment to be made.
There are various due diligence types like financial due diligence, legal due diligence, technical due diligence etc. After the due diligence is conducted, a due diligence report is prepared that highlights all the important facts, observations made and conclusions derived.
Based on due diligence reports, companies make important financial decisions. Therefore, it is important that the due diligence report is prepared carefully in order to ensure that it covers all the relevant information and serves the purpose. What are the key things to keep in mind while preparing a due diligence report? Let’s find out!
Key Things to Consider While Preparing a Due Diligence Report
The following are the important points to consider while preparing a due diligence report:
1) The objectives of the due diligence should be clearly defined. It will depend upon the due diligence type.
2) The report should include certain core information regardless of the due diligence type. This gives a brief overview of where the company stands. These include:
- Information about the finances of the company
- Information about the employees of the company
- Information about the assets of the company
- Information about key partners, customers and suppliers of the company
- Legal information about the company
3) Keep your audience in mind while preparing the due diligence report. This will have a great impact on the type of information that you include in the due diligence report.
4) If you identify any significant issue during the due diligence exercise, it is important to highlight the issue. Further, what are the probable consequences due to such an issue should also be addressed. Also, the ways in which such risks or consequences can be mitigated should be addressed.
5) The report should not include all the information and observations. It is important to keep the report precise and up to the point. Otherwise, the crucial information can be overlooked due to overstuffing and superfluous information thus, defeating the entire purpose of due diligence.
6) One should always ask questions for getting relevant and important information. The seller may hide certain information or fluff it to ensure that certain critical points don’t surface to the top. You can also seek information from those who aren’t directly related to the transaction. If required, legal assistance can be sought.
7) Once the due diligence report is prepared, you should revisit the report to ensure that all the necessary information as per the due diligence type is covered. Make necessary amendments if required.
Following were the 7 key things to keep in mind while preparing a legal due diligence. In case you need any assistance for conducting any due diligence type or report preparation, feel free to contact the ASC Group.
