Wise consumers never buy anything expensive
before a careful product examination. It’s the same for companies that wish to
buy another company or, in this case, merge with them. Financial due diligence services are requested when investors want
to understand everything about their target, which means examining its
financial life inside out, but not only so.
It’s not a job for amateurs, as there’s too
much money and far too many variables involved. That’s when investors and
managers look for a due diligence process by AcquinoxAdvisors.
Here’s what both ends of the deal need to know about this process.
Defining the Concept
Due diligence is one of the first steps
companies and investors take before making big decisions, such as mergers and
acquisitions. It involves deeply examining financial records, operational
efficiency, IT structure, data safety, and how a company has dealt with its
legal obligations. Typically, both parts of the deal resort to financial
due diligence services at that point. There are primarily four
types, as explained below.
Legal
As the name suggests, legal due diligence
(LDD) focuses on all legal aspects regarding a target company. In this case,
intellectual property rights, employment agreements, contracts with suppliers
and other business partners, post-tax profit, income, and the company’s
legal structure.
Financial
Arguably the most common type in the business,
the best financial due diligence
services are always in high demand. Here, all aspects of a business’s financial
health are considered. Income and cash flow statements and balance sheets are
thoroughly examined by experienced professionals and digital tools to develop
not only financial projections but also to factor assets and liabilities.
IT
Some due
diligence service providers also provide IT examinations to see how a
target investment handles its data, networks, hardware, software, and
cybersecurity. The company’s IT strategy is also analyzed for potential risks
or opportunities.
Operational
Operational diligence checks how efficiently
the company handles its daily operations. It also assesses the quality of its
products and services, comparing them with competitors. Operational aspects
also include the company’s growth strategies and the models it has been using
to achieve such goals.
Legal Due Diligence 101
LDD involves more details than the human brain
can memorize. Worse still, it can be lengthy and chaotic if both parties don’t
prepare beforehand. Having all the papers in place is crucial for a smooth and
streamlined LDD process.
In general, the process involves reuniting
copies of all agreements signed by the company, which may affect its assets. In
the first stage, LDD also checks compliance programs, policies, and related
documents, as well as if the company is restricted in any state or country.
Material assets, including inventory stock, real estate, and equipment, are
also considered.
Here’s a summarization of its main aspects.
Ownership
Investors need to know how the target company
is navigating the stock market. It involves providing information about all
shareholders and their stake in the company. Stock broker contracts and
transfer records are also vital at this point. Companies must also prove that
the outstanding stock has been completely paid.
Products and Services
It’s up to the target company to provide
details about all of its products and services. More importantly, it needs to
provide evidence that it’s compliant with the regulations of its industry, be
it the FDA, FLSA, or others. LDD services will also look into product
warranties, recalls, material warranty claims, and potential liabilities.
Human Resources
Here’s where the target company must disclose
its workforce, listing all employees and reviewing interview guides, job
applications, and hiring protocols. Often, legal due diligence firms also request reports on issues like disability
legislation and accusations or charges of sexual harassment in the past few
years. LDD specialists will also want to see disciplinary procedures and
involuntary termination protocols in place.
US-based companies must be compliant with the Fair Labor Standards Act.
Litigations
Investors have the right to know whether their
target is involved in a legal battle. Companies must summarize all litigations
in the past five years, including arbitration proceedings, decrees, or
statutory orders that may affect the business. It’s also important to mention
any closed government investigation in recent years.
Obligations
Target companies must provide copies of
service, vendor, and customer contracts, as well as franchise agreements, joint
ventures, and partnerships. Retirement agreements, building improvement
contracts with constructors, and any existing contract for leasing or
purchasing real estate or machinery are also part of the bulk documents.
Licenses and Intellectual
Property
Failure to provide valid licenses is a deal
breaker for investors. They need to know everything regarding licensing:
franchise agreements, royalties, sublicenses, and, of course, government
permits and authorizations. It must also be clear whether such licenses need to
be renewed regularly and what costs are involved in the process.
The same goes for intellectual property
issues. Copyrights, trademarks, service marks, patents, and material trade
secrets must be on the table. Additionally, companies must provide a list of
the creators of each component involving intellectual property.
Conclusion
Including all aspects of LDD in a single
article would not be possible. Yet, the details summarized here already give a
fair picture of its complexity. The process involves a wide array of documents,
and target companies must have them all at hand if they want to be perceived as
reliable, efficient, and promising.
FAQ
What is legal due diligence
(LDD)? Why is it important for M&A?
Legal due diligence maps a company’s legal
structure, from employment agreements to intellectual property rights. It’s
crucial for mergers and acquisitions because it can tell whether the company is
keeping with its legal obligations. It’s a safety measure that can’t prevent
investors from inheriting legal problems that weren’t on the table at the time
of negotiation.
What are the main aspects
analyzed in LDD?
Legal due diligence reviews all company
contracts with employees, suppliers, business partners, and financial
statements.
Why choose Acquinox Advisors for
financial due diligence services?
Acquinox Advisors blends industry expertise
with the most advanced digital technologies to provide bespoke financial due diligence services. Visit
Acquinoxadvisors.com and learn more
about our services and successful stories.
Wise consumers never buy anything expensive
before a careful product examination. It’s the same for companies that wish to
buy another company or, in this case, merge with them. Financial due diligence services are requested when investors want
to understand everything about their target, which means examining its
financial life inside out, but not only so.
It’s not a job for amateurs, as there’s too
much money and far too many variables involved. That’s when investors and
managers look for a due diligence process by AcquinoxAdvisors.
Here’s what both ends of the deal need to know about this process.
Defining the Concept
Due diligence is one of the first steps
companies and investors take before making big decisions, such as mergers and
acquisitions. It involves deeply examining financial records, operational
efficiency, IT structure, data safety, and how a company has dealt with its
legal obligations. Typically, both parts of the deal resort to financial
due diligence services at that point. There are primarily four
types, as explained below.
Legal
As the name suggests, legal due diligence
(LDD) focuses on all legal aspects regarding a target company. In this case,
intellectual property rights, employment agreements, contracts with suppliers
and other business partners, post-tax profit, income, and the company’s
legal structure.
Financial
Arguably the most common type in the business,
the best financial due diligence
services are always in high demand. Here, all aspects of a business’s financial
health are considered. Income and cash flow statements and balance sheets are
thoroughly examined by experienced professionals and digital tools to develop
not only financial projections but also to factor assets and liabilities.
IT
Some due
diligence service providers also provide IT examinations to see how a
target investment handles its data, networks, hardware, software, and
cybersecurity. The company’s IT strategy is also analyzed for potential risks
or opportunities.
Operational
Operational diligence checks how efficiently
the company handles its daily operations. It also assesses the quality of its
products and services, comparing them with competitors. Operational aspects
also include the company’s growth strategies and the models it has been using
to achieve such goals.
Legal Due Diligence 101
LDD involves more details than the human brain
can memorize. Worse still, it can be lengthy and chaotic if both parties don’t
prepare beforehand. Having all the papers in place is crucial for a smooth and
streamlined LDD process.
In general, the process involves reuniting
copies of all agreements signed by the company, which may affect its assets. In
the first stage, LDD also checks compliance programs, policies, and related
documents, as well as if the company is restricted in any state or country.
Material assets, including inventory stock, real estate, and equipment, are
also considered.
Here’s a summarization of its main aspects.
Ownership
Investors need to know how the target company
is navigating the stock market. It involves providing information about all
shareholders and their stake in the company. Stock broker contracts and
transfer records are also vital at this point. Companies must also prove that
the outstanding stock has been completely paid.
Products and Services
It’s up to the target company to provide
details about all of its products and services. More importantly, it needs to
provide evidence that it’s compliant with the regulations of its industry, be
it the FDA, FLSA, or others. LDD services will also look into product
warranties, recalls, material warranty claims, and potential liabilities.
Human Resources
Here’s where the target company must disclose
its workforce, listing all employees and reviewing interview guides, job
applications, and hiring protocols. Often, legal due diligence firms also request reports on issues like disability
legislation and accusations or charges of sexual harassment in the past few
years. LDD specialists will also want to see disciplinary procedures and
involuntary termination protocols in place.
US-based companies must be compliant with the Fair Labor Standards Act.
Litigations
Investors have the right to know whether their
target is involved in a legal battle. Companies must summarize all litigations
in the past five years, including arbitration proceedings, decrees, or
statutory orders that may affect the business. It’s also important to mention
any closed government investigation in recent years.
Obligations
Target companies must provide copies of
service, vendor, and customer contracts, as well as franchise agreements, joint
ventures, and partnerships. Retirement agreements, building improvement
contracts with constructors, and any existing contract for leasing or
purchasing real estate or machinery are also part of the bulk documents.
Licenses and Intellectual
Property
Failure to provide valid licenses is a deal
breaker for investors. They need to know everything regarding licensing:
franchise agreements, royalties, sublicenses, and, of course, government
permits and authorizations. It must also be clear whether such licenses need to
be renewed regularly and what costs are involved in the process.
The same goes for intellectual property
issues. Copyrights, trademarks, service marks, patents, and material trade
secrets must be on the table. Additionally, companies must provide a list of
the creators of each component involving intellectual property.
Conclusion
Including all aspects of LDD in a single
article would not be possible. Yet, the details summarized here already give a
fair picture of its complexity. The process involves a wide array of documents,
and target companies must have them all at hand if they want to be perceived as
reliable, efficient, and promising.
FAQ
What is legal due diligence
(LDD)? Why is it important for M&A?
Legal due diligence maps a company’s legal
structure, from employment agreements to intellectual property rights. It’s
crucial for mergers and acquisitions because it can tell whether the company is
keeping with its legal obligations. It’s a safety measure that can’t prevent
investors from inheriting legal problems that weren’t on the table at the time
of negotiation.
What are the main aspects
analyzed in LDD?
Legal due diligence reviews all company
contracts with employees, suppliers, business partners, and financial
statements.
Why choose Acquinox Advisors for
financial due diligence services?
Acquinox Advisors blends industry expertise
with the most advanced digital technologies to provide bespoke financial due diligence services. Visit
Acquinoxadvisors.com and learn more
about our services and successful stories.
