Due diligence service is a fact-finding exercise with the purpose of verifying the accuracy of information presented along-with considering the legal aspects to ascertain if this deal will be beneficial for the buyer or not. Due diligence provides information about the assets and liabilities of business, profitability, risks associated with the business under consideration. It gives a clear understanding of the financial health and position of the company. It helps in understanding whether the purchase/investment to be made would be good or not and whether the buyer should proceed with the purchase at the requested price or should renegotiate the price or not to consider the deal at all.
Apart from business acquisition, there can be various situations where due diligence is needed. For instance, it is done before the merger or entering into some sort of agreement, and sometimes a major creditor or lender of the business may conduct a due diligence before extending the credit facilities or loaning money to the business. Experts are hired to conduct the due diligence and depending on the nature of the business or project under consideration, it may involve non-financial areas in addition to financial aspects. Mostly liabilities of the target company are an important subject of any due diligence investigation.
Objectives of Due Diligence
The following can be the objectives of any typical due diligence with respect to buying a target company:
• Due diligence collects information about the target company.
• Due diligence conduct SWOT analysis to reveal the strength and weaknesses of the target company.
• It improves bargaining power or position.
• It provides informed decision to take accurate action.
Areas of Due Diligence
There can be various areas for a due diligence, however it can be mainly divided into the following major areas:
1. Operational Due Diligence
To check the operational prospective of any company due diligence is carried out to see there are no operational issues. For instance, in case of merger of two companies, operational due diligence may be needed to see there is no issue in the merger of two companies and merger is viable.
2. Financial Due Diligence
Financial due diligence covers financial aspects of target company such as to check the financial statements, review of cash flows, analysis of books of account and review of accounting policies and internal control.
3. Tax Due Diligence
Compliance with tax law is very important and in most of jurisdiction the taxation system is very complex, which increase the scope and importance of tax due diligence. This check if the compliance with tax laws and taxes due have been paid.
4. Information System Due Diligence
These days IT systems in companies are playing a very important part. There have been cases when proposed mergers have been rejected because IT systems of both the companies were not compatible. Information system Due diligence checks whether the IT systems being used by the target company or companies are suitable/compatible and information generated by IT system is correct and reliable.
5. Legal Due Diligence
This type of due diligence checks the level of compliance of target companies with laws and regulations. All important legal aspects are covered.
6. Environmental Due Diligence
In case of some industries, it would be important to consider the environmental aspects in respect of the target company.
7. Human Resources Due Diligence
This component of due diligence involves fact finding about a wide range of areas pertaining to Human resources of the target such as number of employees, polices & procedures of human resource, salary structure, terms and condition of employment contracts and retirement benefits.
Due Diligence Services in the UAE
Being professional consultants, the VA performs the due diligence by applying the international standards, industry benchmarks and historical financial information of the entity under consideration. We assist our client’s in performing the due diligence exercise to obtain maximum assurance that the transactions which they are entering into will not be an onerous contract and their interests will be well protected by VA professionals. Our professionals have experience of performing due diligence in various industries and are well equipped with the knowledge and professional experience required to perform the exercise. We guarantee our clients timely deliverables and quality in everything we do irrespective of the hard circumstances and limitations of the industry.