"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition.
During the settlement of any deal of purchase-sale of a business, both parties experience some mistrust to each other. Usually, the proprietors of companies do not want show the information about their company.
According to Ukrainian statistics, no more then 20% of companies are ready to provide information about their structure and pattern of ownership to the third parties, even if the question is not about a veritable proprietor, but about the formal list of founders, that is in a registration chamber.
Thus, the independent verification of the state of businesses in a company is absolutely necessary procedure, if it comes to changing company ownership. Legal verification provides the deeper trust of parties at the settlement of the title transaction. The results of verification are accompanied by recommendations of specialists and allow come to the necessary compromise quite fast, avioding possible conflict of interests. According to European practice, signing of any agreement is accompanied by procedure of Due Diligence.
Due Diligence
Basic essence of procedure of Due Diligence is taken to the receipt of objective information about the subject of investment by the potential buyer. In this case a potential investor carries out all-round verification of company activity with the purpose of estimation of the possible risks related to investments or acquisition of this business.
At the settlement of a transaction a potential investor must determine, whether the risk of considerable financial losses is comparable with a potential income, therefore Due Diligence usually has a few stages.
The main stages of due diligence
Our company "IGP Ukraine ltd" carries out procedure of verification of potential object for investment in three stages. You can order each of the stages of verification individually. For realization of the verification we invove independant accountants, analysts, lawyers and appraisers, that guarantees the all-round complex analysis of activity of the checked up company.
The result of attempt to economize on Due Diligence is often comes to braking the deal. Although even quality research does not allow avoid risks completely, however it allows to take them to the minimum.
The basic stages of Due Dilligence:
- Audit or analysis of the financial report of a farm for his future proprietor. This complex verification allows to define ability of company to bring in a high return to the owner. It consists of verification of rightness of conduction of accounting and studying of authenticity of the given financial information - the hidden obligations, assets of company, its profits, promissory history etc.
- Legal check of a farm consists of verification of conduction of economical activity of the enterprise, form of its organization, illegal charts of activity of the company, check of contracts with suppliers and consumers and taking to a minimum possible risks of alienation of property of the enterprise.
- Estimation of enterprise. As a rule, a modern enterprise is a complicated enough structure that unites in itself plenty of various assets - from the real estate, to business reputation of the enterprise. To appraise it correctly, the appraisor applies several approaches and provides the best solution for both - the seller and the purchaser.