DUE DILIGENCE

Due Diligence

Due Diligence in a Global Context

Introduction

The word due diligence was first used by the United States of America's Securities Act of 1933 (www.sec.gov) Due diligence refers to the is a familiar business instrument used to recognize and evaluate new business opportunities, in order to lessen risk and liabilities of a company. In due diligence, it requires a company to answer critical questions that may lead them to facts related to the company, risk involved in major transactions and projects by the company might also be answerable. In order to perform this operation successfully companies must eradicate the reluctance to ask questions, the answers to which the company might not like. (Sherman and Lehr, pp 3-4) (Angwin, 2001,, 32).

“A future-oriented super audit to help minimize risk and maximize the shareholder value of an M&A transaction” (Pearson) (Angwin, 2001,, 32).

Company conducts Due diligence after the company is initially entering into a deal's primarily understandings. It empowers a company to gain ample knowledge related to the other companies that there deal in the future do not hamper the statistics.

To enter into the global market companies take the help of acquisitions and mergers. Before entering a bond or contract, Due Diligence, helps an investor or a company to learn more about each other. It involves three (3) key areas:

Legal

Financial

Market

Even if, company conducts proper due diligence under expert observations, it can never guarantee the success of the company but it clearly minimizes the odds and help minimize the risk. Due diligence vary from the type of transaction that are taking place. These can include various types of strategic alliances, mergers, joint ventures and acquisitions (Barkema, 1996,, 151).

Due diligence commercially and globally

At the time of acquisition, it is necessary to understand the context in which the business is operating, rather than considering the merits of an individual and profiteering. It is nearly impossible to arrive at a realistic valuation, unless one understands the realistic view of that sector. Many factors have an influence on the market on a competitive stage. Some of these factors include skills, consumers, potential prospects; new geographic locations etc. all of the factors mentioned above create a considerable impact on the future acquisitions (www.sec.gov) (Barkema, 1996,, 151).

Types of Due Diligence:

Legal due diligence

A legal advisor is appointed by the company that covers the entire process of agreement along with the legal part. Lawyers take cares of the legitimate portion as well as the documentation of the entire process.

Financial due diligence

This area is covered with a financial analyst or advisor that evaluates a company's health in terms of its financial stability by evaluating its financial statements, taxes, and balance sheets (Gadiesh and Ormiston, 2002,, 38).

Commercial due diligence

Although this areas importance is still being subjective it still possessive relative importance. Areas that are covered in this context include markets, sales customers, competitiveness etc (Gadiesh and Ormiston, 2002,, 38).

Discussion

Conducting due diligence in a global context

Explanation of the diagram

The ...