Due diligence is a crucial part of any business deal, partnership, or investment. It’s a thorough review of every aspect of a business including its financial records, compliance with laws and potential risks.
A due diligence checklist can be used to guide conversations, pinpoint obstacles to M&A deals quickly, and allow stakeholders to concentrate on structure, strategy, and execution. A due diligence checklist can cut down on risk by ensuring that all parties are on board with the scope of the investigation and the required documentation.
The type of documentation included in the due diligence request will differ based on the nature of the transaction. However, there are a few basic components that all M&A due diligence requests should include:
Most M&A due-diligence reviews require detailed financial reports for the last three years. These documents provide a clear picture of the target company’s financial situation and help to identify areas of growth.
Other areas of due diligence are the ability of the target to meet its financial obligations and the strength of its existing capital structure. Other areas to be considered include a review of the management team, internal processes, technology infrastructure, and supply chain.
A thorough due diligence checklist will also examine a company’s environmental safety and health practices as well as any regulatory violations. It should also examine the company’s stance on intellectual property rights, and the way it intends to handle the possibility of a data breach. A due diligence assessment should also evaluate the company’s contingency plans and disaster recovery plans.