Why due diligence?
It checks that the items the price is based on (earnings, assets, debts) match reality, and reveals the risks to be covered in the contract.
The essential strands
Financial: quality of earnings, net debt, normalised working capital. Tax and employment: reassessment risks and compliance. Legal: key contracts, disputes, ownership of assets.
Warning signs
Earnings driven by one-off items, dependence on a few customers, overvalued inventory, off-balance-sheet debt, unprovisioned disputes.
From report to negotiation
Each risk identified becomes either a price adjustment, a warranty and indemnity, or a condition precedent to signing.
This guide gives general pointers. For your situation, talk to our experts.
