In the wake of the 2008 financial crises, the world has moved towards a more sophisticated approach to investing: an independent due diligence. It is no longer sufficient to allocate capital based solely on investment strategy, past performance, and stated liquidity terms. Investors, in good faith, must understand the appropriateness and risks of the actual product as a vessel for its strategy and liquidity terms; additionally, operational risks and investor rights now matter more now than ever before.
The Independence Principle: The firm that provides the due diligence to the target market has to ensure that it does not provide the target company other services, such as auditing and accounting, which might conflict with the due diligence service to be provided.
The firm has to follow the proper procedure to ensure that the engagement team involved with the project have no interest in what might impair the independence of the firm.
If a conflict of interest that could impair the independence of the firm is noted, proper assessment of impairment needs to be performed and safeguarding procedures need to be in place to ensure that impairment is reduced as much as possible. If the safeguard cannot help, the firm should consider withdrawal from the engagement.
The scope of the review depends on the size and scale of the transaction and the surrounding risks. Our due diligence service focuses on the most critical elements of transactions, including:
- Identifying and quantifying industry and deal-specific risks and opportunities;
- Evaluating quality and reasonableness of historical and projected earnings and cash flows assessing quality of assets;
- Identifying hidden costs, commitments, and contingencies;
- Identifying and quantifying tax exposures;
- Identifying and quantifying liabilities that can be deal breakers; and
- Highlighting issues likely to affect the purchase price or contract conditions.
Contact us to get started on an independent due diligence for a merger, acquisition, or sale of your business.
