In the era of technological development and cross border business relationships, the chances for frauds and risk exposures have also increased. As a result of globalization, more and more foreign companies are looking forward to have business relationships with the Indian Companies by way of Mergers, Acquisitions, Amalgamation, Investments etc. As every business involve hidden risks and losses, it becomes necessary to undertake a background check before entering into business deals. Due Diligence acts as a risk management tool and it verifies the attractiveness of the target company, valuation, risk associated etc. The financial institutions also rely on due diligence while providing financial assistance to the Companies.
Types of Due Diligence
- Business Due Diligence
A business due diligence is carried out when a company is being acquired by another company or when a company makes investment in another company. It will help the acquirer or investor to take investment decision and to find out the risks associated. This will cover the business aspects of the target company such as market conditions, sectoral legislations, competitor analysis etc.
- Operational Due Diligence – Reviews the operational aspects of target business
- Strategic Due Diligence – Identifies the future prospects of the target business
- Technical Due Diligence – Analyzes the technology, products and processes of the target Company.
- Environmental Due Diligence – Identifies the impact of the target business on the environment.
- Human Resource Due Diligence – It aims at identifying human resource related issues in the target company
- Information Security Due Diligence – It analyses the risks associated in the process of information technology procurement.
- LegalDue Diligence
It is the process of collecting, understanding and assessing all the legal risks associated with a business transaction. It includes investigating relevant laws, employment disputes, governing documents and contracts etc.
- Financial Due Diligence
In financial due diligence, the financial information will be assessed for identifying the performance of the business entity. It helps the clients to identify the prospects of the target business.