Acquiring, taking over or merging with a company can be one of the fastest routes to growth when done well. However, the financial, tax and legal burdens of the target's past often pass to the buyer. Due diligence is the thorough review carried out to uncover these risks before the deal is signed.
Why is due diligence necessary?
There may be a gap between the information presented by the seller and the true position of the company. An independent review allows you to agree the right price, add protective clauses to the agreement and, if necessary, walk away in good time.
1. Financial review
- Review of recent financial statements and audit reports
- Sustainability of revenue and profitability, separating one-off items
- Working capital, debt, guarantees and off-balance-sheet obligations
- Reliability of accounting systems and internal controls
2. Tax review
- Whether tax returns have been filed completely and on time
- Potential tax exposures from prior periods, ongoing settlements or disputes
- Open matters such as foreclosures, postponements or cancellations
- Whether the conditions of any incentives and exemptions have been met
3. Legal and corporate review
- Articles of association, shareholding structure and management powers
- Key customer, supplier and lease contracts, including change-of-control risks
- Employee obligations and work permits of foreign staff
- Ongoing litigation and potential claims
4. From findings to the agreement
The findings of the due diligence report should be reflected directly in the purchase price, payment terms and the warranties and indemnities in the agreement. Once the transaction is complete, restructuring and institutionalisation help the company adapt to its new structure.
An independent, experienced team
Effective due diligence brings together audit, tax and corporate finance expertise. Tatar & Co. provides reviews and due diligence for company acquisitions, transfers, mergers and divisions. See our Corporate Finance services or talk to us.
