Due Diligence Process
Assuming that you are on the selling side of an acquisition, you are in for a fun filled sixty days. After signing a Letter of Intent, the Due Diligence (DD) begins. The DD is usually quite extensive and may include as many as twelve different areas of concern. The obvious are: Legal; Financial; Tax and Regulatory; Operations; and Information Systems. However, other areas of concern are: Risk Management (Insurance); Human Resources; Logistics (Facility); Procurement Policies; Sales and Marketing; Environmental and Health, Safety and Security.
I have seen a DD list with over 1,300 questions that needed to be addressed by the Seller. In the financial arena, a Seller should expect to provide a minimum of three years of Balance Sheets, Profit and Loss Statements, Cash Flow Statements, Monthly Financials for the past two years and Tax Returns for the last five years.
Very often a Data Room is set up to store all the documents needed to answer a Buyer’s request. The Data Room is usually maintained offsite by a third party. The Seller and Buyer, as well as approved third parties, such as banks and financial consultants are given access to the Data Room. Links are set up so that the approved parties can access information needed to determine that the requests have been adequately addressed. A gatekeeper is normally assigned to upload all the data.
As you can see, this is a very stressful time, getting the information is stressful and time consuming, usually created in a short period of time.
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