Understanding the details is the key to making an investment
The purpose of due diligence is to try to prevent any negative surprises that might occur after buying or investing in a particular company. Company due diligence reveals legal, tax, financial, operational and other risks. Due diligence usually serves as the basis for conducting a final valuation of the company and for structuring the transaction.
There are different types of due diligence, such as financial, tax, legal, operational, technology and commercial due diligence. We mainly carry out financial, legal and commercial due diligence.
Legal due diligence
The purpose of legal due diligence is to develop a clear understanding of the company’s legal position as well as the risks, opportunities and potential problems that could affect the value of the company or the success of the transaction. Legal due diligence most often involves an analysis of the following:
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1. Review of corporate documentation
Conducting an analysis of the articles of association, instruments of incorporation, decisions taken by the company’s bodies and other corporate documents.
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2. Verification of ownership and management
Checking the company’s ownership structure, managers and supervisors with the aim of identifying potential conflicts of interest or other problems. Reviewing asset encumbrance through collateral, mortgages and other encumbrances.
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3. Review of business contracts
Conducting an overview of the key business contracts such as supplier, sales and lease contracts with the aim of identifying any liabilities or risks.
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4. Verification of intellectual property
Conducting an overview of patents, trademarks, copyrights and other types of intellectual property with the aim of assessing their value and potential risks.
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5. Review of labour documentation
Examining labour agreements, collective agreements, employment policies and other labour matters with the aim of identifying potential liabilities or risks.
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6. Verification of compliance
Verifying whether the company complies with all the required regulations, standards and legislation, including laws on environmental protection, competition law and consumer protection.
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7. Other
Documents relating to real estate, such as leases, encumbrances, judicial proceedings, etc.
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Financial due diligence
The purpose of financial due diligence is to develop a clear understanding of the company’s financial position as well as the risks, opportunities and potential problems that could affect the value of the company or the success of the transaction.
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1. Review of financial statements
Conducting an analysis of the balance sheet, income statement, cash flow statement and statement of changes in equity to be able to understand the financial health of the company and identify any irregularities or hidden issues.
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2. Analysis of financial indicators
Comparing the company’s financial indicators against industry standards and competitors with the aim of determining the company’s efficiency, profitability and financial stability.
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3. Analysis of working capital management
Conducting an analysis of the strategy and efficiency of the management of liabilities, inventory, receivables and cash resources.
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4. Verification of assets and liabilities
The CFO will help you optimize your business in order to ensure that there is always enough money available. Your working capital (inventory, receivables, cash on hand, payables) will be optimized to keep your business running smoothly.
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5. Review of tax situation
Conducting a detailed overview of the company’s assets and liabilities to assess their value and any risks associated with them.
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6. Estimation of cash flows
Checking the company’s tax liabilities, any unpaid taxes, tax disputes or other tax-related risks.
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7. Verification of compliance with regulations
Conducting an analysis of company’s cash flows with the aim of determining its ability to generate cash, meet its obligations and finance growth.
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8. Estimation of risks and opportunities
Checking whether the company complies with all the required financial regulations, standards and legislation.
Due diligence can cover several areas and categories within each field, taking into account different timelines, at the request of the client.
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Commercial due diligence
Commercial due diligence involves a thorough analysis of the economic and business activity of the company, including its business operations, market position, key customers, suppliers and other stakeholders.
Commercial due diligence typically covers the following areas:
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1. Strategy and business plan
Analysis of the company’s business model, strategies, business processes, production capacities as well as technologies, business plans and objectives.
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2. Market position analysis
Conducting a thorough analysis of the market in which the company operates, including competition, market share, market trends and growth potential.
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3. Review of customers and suppliers
Conducting an analysis of the main customers and suppliers, their contracts and business relationships to identify potential risks and dependencies.
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4. Review of sales performance
Conducting an analysis of financial statements, revenues, costs, margins, profitability and other key financial indicators that point to the company’s commercial viability and potential.
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5. Review of personnel and organizational structure
Conducting an analysis of the organizational structure, including employees, their competencies, satisfaction and personnel retention.
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6. Verification of compliance with industry standards
Checking whether the company complies with all the required industry standards and regulations, including regulations on quality assurance as well as health and safety at work.
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7. Other commercial areas
Documents related to the company’s activities, such as licensing agreements, patent applications, partnerships and strategic agreements, mergers and acquisitions, etc.
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