Due Diligence

• Process of Investigation conducted by parties involved in a business transaction.

Types:

1. Financial due diligence – Qualitative and Quantitative analysis of organization’s financial

performance to get a sense of earnings on a normalized basis.

 Performance of a business

 Assumptions of the projections

 Analysis of the assets and liabilities

 Pricing of raw material at par with market value

 Finished goods of stock unlikely to be sold in a near few month

 Liability on the purchase of inventory

 Central and sales tax

 Seller nexus in other states

2. Strategic due diligence - Provide the acquiring organization the information to drive change
and improve profitability or help the buyer determine that the deal is not worth pursuing.

 Does it make sense?

 Will the acquisition benefit the organization?

 Customers supply chain

 Currently manufacture?

 Who does it sell?

3.Operational due diligence - Transaction to determine what the buyer can do to realize
improvements in productivity and profitability.

 Examine work centres

 Material flow and stock generation

 Inventory level

 Scrap generation

 Lean manufacturing principles to achieve maximum profitability

4.. IT due diligence – Money needed by the buyer to invest to operate efficiently.

 Current level of technology

  Is it up to date ?

 Company use the existing technology

 Sufficient to allow organization to continue to grow?

5.Human Capital due diligence – People related issues .

 Cultural differences aren’t understood ,simply ignored

 Cuts in pay/ benefit create illwill reduce productivity

 Confusion amongst staff when management doesn’t communicate its business goals

Lack of an effective integration plan

People Involved:

1. Legal Professionals

2. Financial Professionals

3. Operational Professionals

Parties Involved:

Employees, Trade Unions, Share holders and Creditors, Vendors, Customers, Government,
Society.

Steps in Due Diligence:

Planning phase – Data collection phase – Data analysis phase – Report finalisation phase – Due
diligence reporting