In the current business environment requires many more actions than in the past. The way in which business is made today requires a greater number of actions, in the previous, development and post negotiation of purchase or sale between companies, because every business process generates a greater impact on more than the firms of Contract of both parties. That is why, it is precisely necessary to know, with the greatest possible degree of certainty, everything that surrounds the part with which it will proceed to operate. This process is the due dilligence .
Concept of DUE DILIGENCE in the purchase surroundings of companies
The DUE DILIGENCE , also known as “due proceedings”, is one of the most important stages in the environment of the purchase processes of companies. It is a review of the business of the company to acquire, with the main objective of confirming or dismissing all the commercial, tax, legal, labor, environmental hypotheses, etc. on which the acquisition decision has been made.
The realization of the due diligence clearly reduces the risk of the company’s sale transaction, and provides the buyer with an independent, objective, detailed evaluation of the business, especially reviewing the existence of the existence of the existence of the existence of hidden liabilities or contigencies in each and every one of the areas subject to the review. Hence its importance and value. It also allows to detect improvement points and value levers for the potential buyer.
The main objective of this due diligence process is to know in depth what is the object of acquisition, through a complete review of all the business areas that make up the object company.
The result of the due diligence is decisive in the process of negotiating the sale of the company, in the requirements of additional guarantees to be able to take it to fruition, and in the same closure of The transaction of the sale sale.
It is generally beginning after the signing of the “letter of intentions” by the acquirer of the company and under express consent of the company’s seller.
When should a Due Dilligence ?
There is no fixed or unique rule about when the due diligence should be made in the purchase of a company. The most common is to be carried out in the transactions execution phase, and often constitutes a true negotiation element within the purchase transaction transaction of the company.
A DUE DILIGENCE is not similar to an audit (regulated and normalized), therefore, there is no normative regulation that indicates its extension, its sections, its content …
The scope and content of a due diligence is marked by:
- needs of the purchase process in question
- dimension and complexity of the company to acquire
- uses and customs in this discipline (the purchase of companies)
In spite of this, there are certain areas or sections that are normally repeated in all Due Diligence in the purchase of companies, and they are the following:
- the background of the transaction
- the overview of the business
- the organization of the company
- business analysis
- Financial analysis of the company
- Information and Control System
- fiscal contingencies
- environmental contingencies
- risk management and insurance
- legal contingencies
- labor contingencies
The cost of a Due Diligence will always be referenced at the hours that will be reversed, by the advisors, in developing it. Therefore, the greater the scope, and the greater the depth the due diligence , the greater its cost will be.
Although, there is a calculation rule that is usually a good orientation: its cost is usually approaching 1% of the global volume of the purchase transaction of the company in question.
The cost of a due diligence is justified by having to be carried out by professionals absolutely specialized in performing this type of work; And it is considered as a work of “high risk”, in terms of the responsibilities that its realization can entail, as well as the consequences that the conclusions of the same can have for the transaction of the purchase of the company. P>
In short, it is a vital tool for decision -making, and allows you to precisely evaluate the sale of companies, do not hesitate to contact us if you want to receive a Due Diligence .