Types of Due diligence
The different types of Due Diligence are as follows
Legal Due Diligence: Legal Due Diligence is used to ensure that there are no legal issues in buying a business or investing in it. In this, the solicitors will review the important legal documents of the target firm such as employment contracts, board meeting minutes, articles and memorandum of association and patents and copyrights or any other property related documents.
Financial Due Diligence:
Tax Due Diligence: This is performed simultaneously with the financial due diligence. This is aimed at ensuring that there are no past tax liabilities in the seller firm that might have materialized due to mistakes or deception and could hold the acquirer liable for it.
Operational Due Diligence: Operational due diligence (ODD) is the process by which a potential purchaser reviews the operational aspects of a target company during mergers and acquisitions. The ODD review looks at the main operations of the target company and attempts to confirm (or not) that the business plan that has been provided is achievable with the existing operational facilities plus the capital expenditure that is outlined in the business plan.
IP Due Diligence: IP due diligence is focused on establishing what rights the company may have in various intellectual property and where it might rely on the intellectual property of another entity. Typical areas of interest are patent, copyright and trademark filings; descriptions of the company’s IP protection processes; licensing agreements.
Commercial Due Diligence: This aims at understanding the market the target business is operating in. This looks at the forecast of the market growth in future and the target’s position in the market with relation to its competitors. This also involves interaction with the customers of the business to understand their opinion about the business.
IT Due Diligence: This aims at identifying if there are any IT issues in the target business. This looks into matters such as scalability of systems, robustness of the processes, the level of documentation of processes, compliance with the legislation and ability to integrate various systems.
HR Due Diligence: This aims at understanding the impact of human capital on the proposed deal. This looks at employment records, compensation schemes, HR processes, ongoing HR litigations, effectiveness of the sales force and cultural factors.
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