Due diligence is an in-depth examination of the business inventory empowering growth through digital strategies the financials, contracts and financials and intellectual property. It also includes an assessment of any outstanding legal issues that could impact the acquisition.
Due Diligence is a crucial part of any M&A transaction, and it assists investors in determining the true value of a company. Most of the time, due diligence involves reviewing documents that are confidential to business and requiring the signing of non-disclosure or noncompete agreements. It is crucial that these processes are thoroughly followed to avoid issues that may negatively impact the agreement or result in it falling through.
Investors should also check for any concerns related to intellectual property, including patents and disputes, as well as licensing. Additionally, they should be aware of the human element of the company and understand its culture, such as golden parachutes, severance plans and stock purchase options.
The $9 billion Theranos collapse is a clear reminder to conduct thorough due diligence before investing. While many of the red flags were openly obvious, it shouldn’t be an excuse not to go through the process. Due diligence can be a long and time-consuming job that requires coordination of many stakeholders and the expertise of experts in different areas. It is important to define the goals of your due diligence which will allow you to determine the resources needed and what to glean from it. In certain situations, you may need to consult with experts from outside, such as lawyers, insurance agents advisors, financial or tech experts.