DILIGENCE IN A GLOBAL CONTEXT

Problems Faced by an Organisation when Conducting Due Diligence in Global Context

Problems Faced by an Organisation when Conducting Due Diligence in Global Context

Introduction

Due diligence is a fact-finding mission or investigative exercise designed to provide the information required to meet a specific goal or objective. Typically, it is used when a business is involved in a purchase or sale or requires financing. However, distressed organizations also require due diligence to address the decision to attempt a turnaround or to liquidate the organization (Gary 2004, pp34). This decision is fundamental to optimizing shareholder value. Executed correctly, due diligence will provide a solid platform that enables this process. It will also provide useful information concerning ancillary objectives such as divestiture or refinancing. If a turnaround is the best choice, the due diligence process will also provide the basis for a viable plan.

The concept of "due diligence" is based on the assumption that the target company is in a process of closure and liquidation, and therefore, by the process of "due diligence" are valued assets and liabilities at fair value with In order to establish a reference value at a given date as a basis for negotiation. Of course, in determining the final price will be taken into consideration other factors such as age of the company, market share, location, potential to generate profits, etc. important to note that an approach of "due diligence" differs substantially from an approach of "going concern".

Discussion

A work of "due diligence" research is an analysis of financial and operational activities of a target company or entity related to a possible transaction that would result in a significant change in ownership or ownership structure of the target company. The research analysis can cover current operational and financial aspects of the entity as well as prospective financial information in the short and medium term. In this sense, the "due diligence" would assess the assumptions used to prepare such financial information, methodology, consistency with past performance and issues pertaining to its submission and the mathematical accuracy of the information analysis research can be oriented in various activities of the target company, depending on the interests of the prospective buyer.

However, in most cases, the areas investigated are related to: financial and accounting aspects, estimation of labor liabilities, tax issues, issues related to the area of ??information technology, review aspects of these areas is primary purpose, to establish the existence of possible contingencies, internal or external, not only in monetary terms, but also operating in some way could alter or hinder the negotiation, or adversely affect the future operations of the company. The globalization of markets and the absence of trade barriers are the main promoters of the many mergers and / or acquisitions occur, with increasing frequency in the business world. It is therefore important that we have a proper understanding of what constitutes a work of due diligence or "due diligence" and provides relevant information on the successful closing of an acquisition ...