Due diligence is an essential aspect of any deal, partnership or investment. It’s a comprehensive examination of all aspects of a company such as its financial records, compliance with laws and potential risks.
Utilizing a due diligence checklist helps to inform conversations, swiftly find obstacles to M&A transactions, and allows stakeholders to focus on strategy structure, execution and structure. A due diligence checklist reduces risk by ensuring that everyone is on board with the scope of the investigation and required documentation.
The type of documents included in due diligence requests will vary according to the nature of the transaction. All M&A due-diligence requests should include the following basic elements:
Financial reports with detailed information covering the last three years are required for the majority of M&A due diligence reviews. These documents present a clear picture of the target company’s financial condition and can help identify areas for growth.
Other things to take into consideration are the target’s financial obligations as well as its capital structure. Other areas of interest could include a review of internal processes, supply chain, management and technology infrastructure.
A due diligence checklist must also include a review of the company’s environmental practices in terms of health and safety. This includes any regulatory violations. It should also review the company’s position regarding intellectual property rights and the way it intends to handle any data breach. A due diligence review should also evaluate the company’s contingency plans and disaster recovery plan.
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