Due Diligence mainly includes a compliance check, which comprehensively examines the operational activities, relationships with contractors and government agencies, possible adverse factors of the enterprise, and so on.
The Meaning of the Due Diligence
The term due diligence was introduced into legal circulation in the United States in the early twentieth century. Initially, it meant the process of disclosing information by a broker to an investor about a company whose shares are traded on a stock exchange. Currently, this term refers to the collection and analysis of information to assess the various risks associated with investing. Of course, this understanding of this term is adopted by us specifically for our small study. In various special fields of knowledge and practice, this term may have other meanings.
- in the field of patent activity – is reasonable diligence, ie continuous activity after the emergence of the invention, aimed at its practical implementation;
- in the financial sphere – proper inspection, proper inspection.
Due diligence begins with the collection of information. Information about the object of analysis can be obtained primarily from the object itself. That is, the object of legal audit may actually be a person – an enterprise that can provide initial information. Information can also be obtained from the owner of the object. In modern society, obtaining information is somewhat facilitated due to the so-called information explosion, as a result of which such open sources of mass information as the Internet, printed sources, etc., may well serve as material for analysis.
There is often a situation where you buy an interesting and attractive asset for a reasonable price, which was supposed to become a diamond among the client's investment, but then it turns out that the diamond was counterfeit: the purchased asset is not only valuable but even toxic, is numerous litigation and requires huge unprofitable cost. All this could have been avoided if a legal audit of the object had been carried out before the acquisition. Therefore, it is said that the buyer had to show due diligence before purchasing.
What Should Be Involved in Due Diligence Processes?
The due diligence process should include:
- Risk reduction – provide the most complete and transparent picture of all issues of the company being audited. This allows reducing the risk of making important strategic decisions for the customers.
- Many years of experience allow understanding the needs of customers ordering Due Diligence.
- Confidentiality – guarantee the complete security of the data we work with. This is enshrined in the standards of our international network and is strictly controlled by the head office.
Another characteristic feature of the due diligence market is the long period of the transaction. This trend was especially acute in times of crisis. The unstable economic situation and the foreign political situation also contribute to the increase in the terms of the transaction. Often, the parties to the transaction cannot agree on the terms for a long period of time, which leads to the delay of negotiations up to their complete termination and termination of the merger.
It should be noted that the ongoing study and the identified main features of the due diligence are influenced by the secrecy of information in the market. Many small and medium-sized transactions are carried out non-publicly, and if some information is received in the media, it is far from being in full. Given these objective factors, this study was conducted on the basis of information about transactions that have all of the above characteristics.