Due diligence involves a thorough analysis of the inventory of the business contract, financials, and financials as well as intellectual property. It also involves an examination of any outstanding legal issues that could affect the acquisition.
Due Diligence plays a vital role in any M&A deal, since it helps investors determine the real value of a business. Most of the time due diligence involves the review of private business documents and the signing of nondisclosure or non-compete agreements. The process must be completed completely to avoid any issues that could negatively affect the contract, or cause it to fail.
Investors should also look for any intellectual property concerns such as patents disputes, licensing and disputes. In addition, they should be aware of the human element of the company and know its culture, including golden parachutes, severance packages and stock purchase options.
The $9 billion Theranos collapse is a clear reminder to conduct thorough due diligence before investing. While many of the red flags were obvious, it shouldn’t serve as an excuse to avoid this step. Due diligence is a long and tedious job that requires coordination between various parties and the knowledge of experts from create a compelling due diligence report various areas. It is crucial to determine the goals of your due diligence which will help you decide the resources required and what you can get from it. In some instances you may have to involve outside experts like lawyers, insurance agents advisors, financial or tech experts.