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What Is Due Diligence?
Due diligence is the method by which you take the time to review all information prior to making any major purchases or commitments. It helps you weigh the benefits against risks and make an economically viable and strategic decision.
Due diligence varies depending on the kind of transaction, but there are a few essential steps in each case:
Commercial Due Diligence
This includes a look at business operations, such as customer relations, sales strategies, or growth potential. It is important to know the target company’s financial strength and market position in order to accurately value the deal and ensure it will benefit all parties.
Tax Due Diligence
The analysis examines the https://realtechnolive.com/what-is-dlc tax profile of the target company with a focus on income and other taxes like employment/payroll, sales and use property, transfer taxes(opens in new tab). It also examines the impact of tax issues that might arise from the acquisition, and how to structure it and how to mitigate the potential liability.
Representations and Warranties
Prior to an IPO attorneys, underwriters and the company itself do due diligence to confirm that the representations in its filings with the SEC are accurate. As part of this, the target company is interviewed by key employees and its top management to discuss everything from creation of products, intellectual property to revenue projections, with the goal of identifying any potential pitfalls that could derail the deal. This isn’t the same as performing due diligence on customers, but it’s an important step to ensure that all information and documents are correct and current prior to the DDQ is issued.
