“Due diligence” is a legal term used to refer to all the verification procedures to be carried out on a person or a company before signing a contract or a financial agreement with them.
It is a multiple examination procedure that is carried out on a regular basis within a context of mergers and acquisitions or a company take over .
Why a “Due Diligence” necessary
For an individual or a company wishing to invest, the purpose of a due dilligence is to cover and validate the following points:
- the degree of judgment,
- the degree of caution,
- the degree of care,
- the degree of firmness,
- the degree of action.
The goal is to protect yourself or the company against any detrimental event that could occur once a transaction or a contract has been recorded. Preliminary assessments are carried out in various fields: strategic, IT, tax, environmental, accounting, etc.
Due Dilligence is motivated by an investor will to be cautious before comiting to a financial project.
The fact of undertaking checks on a new partner on one or more aspects of its management is not mandatory and simply falls under the precautionary principle.
On the other hand, there is a verification procedure which is similar to the principle of due diligence but which is imposed by law. This is the duty of care.
This is in fact legal requirements that are mandatory that make to clearly identify an interlocutor and the origin of all his financial ressources.
The principle of duty of care is mandatory for all credit institutions and fundraisers.
It is for this reason in particular that you must be very alert, because your own bank may, during its duty of care procedure , discover serious acts of corruption or money laundering in connection with the company with which you are dealing with.
At that point it will be too late, your institution must report you to TRACFIN and it will close your accounts on the spot!
Note : TRACFIN is a french government agency in charge of identifying and fighting illegal financial circuit and money laundering.
What are the risks that investors generally want to assess?
Economic risks: it is necessary to fix an appropriate purchase price, verifications concerning patents, software, materials or other must be carried out in order to acquire the company at its fair price.
Financial risks: it is important to have all the financial information of a company in order to avoid bad surprises. Checking potential debts or off-balance sheet commitments can be carried out.
Reputation risk: it is recommended to verify the links of a company between its customers and partners. Investigate any questionable practices that could jeopardize the buyer’s investment.
Legal risk: it is a must to check compliance with the regulations in the countries where the company is established, but also to be aware of any proceedings or legal disputes in progress.
What are the different forms of due diligence?
- financial due diligence
- market due diligence,
- commercial due diligence,
- environmental due diligence,
- human resources due diligence,
- technical due diligence,
- intelectual property due dilligence,
- strategic due diligence, etc.
All those categories of due diligence will bring answers that the future buyers of a business must ask themselves. Those procedures will allow him to measure all the risks and benefits and discover any hidden information that could jeopardize his investment.
It is recommended to carefully assess and investigate different forms of due diligence within a company in order to avoid problems.
An investment made too fast without precise analysis and background checking can be harmful for the investor who could face legal problems or jeopardize his own structure in the event of a merger.
Our certified private investigation firm will assist you with a step by step methodology
- Collecting the information provided by the client and needs analysis.
- In-depth OSINT searches through specialized digital tools and subscriptions.
- Research (interviews, monitoring, administrative checks, etc.).
- Credibility assessments , data perception and relevance.
- Professionnal and business connections investigation.
- Studying the context of the financial investment with analysis
- Full detailed report on all our verifications.
Note: OSINT stands for open source intelligence.
Agora Detectives will assist you. Do not hesitate to contact our agency for a free consultation. Experts will be available to discuss your needs and expectations. Free quotes and estimates.