Introduction to Due Diligence
Due Diligence in legal terms means comprehensive appraisal of a business undertaken by a prospective buyer. BSP Freedo do its due diligence by process of verification, investigation, or audit of potential investment opportunity to confirm all relevant facts and financial information. Our team verify details during the meetings leading up to the merger acquisitions and investment process. The process of due diligence typically includes the complete understanding of a company’s obligations, including their debts, leases, distribution agreements, pending lawsuits, long-term customer agreements, warranties, compensation agreements, employment contracts, and similar business components.
Why need Due Diligence services?
Reasons for conducting due diligence include:
- Identifying potential defects in the deal or investment opportunity.
- It helps prevent lousy business transaction
- To obtain helpful information to evaluate the deal
- Make sure the investment opportunity complies with investment criteria
There usually are two perspectives to due diligence.
From a buyer’s perspective, due diligence is conducted to make them feel more comfortable with their expectations regarding the transaction. In mergers and acquisitions, purchasing without due diligence increases the risk to the purchaser.
From the seller’s perspective. It is conducted to reveal the actual market value of the seller’s company. The seller must prepare for the upcoming deal, and conducting due diligence allows the seller to negotiate better in meetings with potential buyers.
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Legal Conditions behind Due Diligence
Legal due diligence is the investigation process carried out on a target company after the preliminary negotiations are over regarding a prospective deal. Legal due diligence is conducted to identify the pros and cons, which help understand the opportunities or threats associated with the agreement. There are five types of due diligence – Financial, operational and IT, people, regulatory, and environmental.
Financial due diligence is the type described extensively in the first section. Operational and IT due diligence include current technology and operational risk. People’s due diligence is about the human and organizational structures. Regulatory kind is one of the most important. It is an independent review of the target company and whether it complies with all of the regulatory requirements in the jurisdiction of its operation.
How does BSP Freedo Help?
The efficacy of an independent due diligence report is a decisive factor for investors looking to go ahead with a proposed investment. The scope of the due diligence review is always determined in conjunction with you, and it depends mainly on the size and scale of the transaction and the surrounding risks. We here at BSP Freedo specialize in providing financial and tax due diligence support to our clients, and our service focuses on the critical elements of transactions, including:
- Identifying and quantifying industry and deal-specific risks and opportunities.
- Evaluating the quality and reasonableness of historical and projected earnings and cash flows, assessing the quality of assets.
- Identifying hidden costs, commitments, and contingencies.
- Identifying and quantifying tax exposures.
- Identifying and quantifying liabilities that can be deal-breakers
- Highlighting issues likely to affect the purchase price or contract conditions.
BSP Freedo have a team of seasoned well-versed experts of accounting and tax specialists. We provide value-added services to corporate and private equity clients daily and have a deep understanding of India’s unique challenges. Some of the challenges include:
- The disparity in accounting principles and quality of the provided financial information.
- Lax internal control, corporate governance standards and transparency
- The proliferation of related party transactions; and
- Complex and evolving tax rules and regulations.
Our team carries out reviews based on the verification of records and an extensive analysis of data and information. We verify compliances and highlight potential risks and liabilities and provide critical inputs for structuring your transaction.
We identify any potential risks that need documentation through representations, warranties, and indemnities. We concentrate on strategic objectives, negotiation opportunities, and operational efficiencies in defining the service appropriate to each engagement. Our varied experience helps us deal with industry-specific issues more effectively.