Due diligence involves a thorough examination of the business inventory, financials and contracts, as well as intellectual property. It also includes an assessment of any legal issues that could impact the acquisition.
Due Diligence is a vital element of any M&A transaction. It helps investors assess the real value of a company. Typically due diligence involves reviewing private business documents and the signing of non-disclosure and non-compete agreements. It is essential that these procedures are completed thoroughly to avoid any issues that could negatively impact the agreement or cause it to be canceled.
Investors should also look for any concerns with intellectual property, including patents disputes, licensing and disputes. Additionally, they should be aware of the human element of the company and know its culture, which includes golden parachutes, severance package and stock purchase options.
The $9 billion Theranos collapse is a clear reminder to conduct thorough due diligence prior to investing. Although many of the red flags were openly evident, it shouldn’t be an excuse to avoid this step. Due diligence can be a lengthy, time-consuming task that requires coordination between multiple stakeholders and the expertise of professionals in different fields. It is essential to establish the goals of due diligence. This will allow you to determine what resources are needed and how you can use them. In some instances this might mean involving outside experts like attorneys, insurance agents or consultants in technology or financial matters.