2019-20

PAPER CODE: DBBA 602C

PAPER TITLE: International Joint Ventures, Mergers and Acquisitions Practical

Project on
Due Diligence
SUBMITTED BY: SUBMITTED TO:
Pakhee Jain Dr. Chhavi Jain
171167 Sr. Assistant Professor
ICG/2017/23837 IIS (Deemed to be
BBA-A (Semester VI) UNIVERSITY)
 DUE DILIGENCE
INTRODUCTION
Due diligence is an investigation or audit of a
potential investment or product to confirm all
facts, that might include the review of financial
records.
Due diligence refers to the research done before
entering into an agreement or a
financial transaction with another party.

Source: https://www.investopedia.com/terms/d/duediligence.asp
 Investors perform due diligence before buying a security
from a company.

Source: https://www.investopedia.com/terms/d/duediligence.asp
 Due diligence can also refer to the investigation a seller
performs on a buyer that might include whether the buyer
has adequate resources to complete the purchase.

Source: https://www.investopedia.com/terms/d/duediligence.asp
 DUE DILIGENCE
PEOPLE INVOLVED IN DUE DILIGENCE

Legal Operational
Financial
Profession Professionals
Professionals
als Business
Accountant
Lawyer Advisor

Source:
 DUE DILIGENCE
PARTIES INTERESTED IN DUE DILIGENCE

Employee Trade Unions Shareholders Vendor

and Creditors
 DUE DILIGENCE
PARTIES INTERESTED IN DUE DILIGENCE

Government Customers Society


TYPES OF DUE DILIGENCE
1.
Administ
rative
DD
●
It is the aspect of due
diligence that involves
verifying admin-
related items such as
facilities, occupancy rate,
number of workstations, etc.
●
The idea of doing due
diligence is to verify the
various facilities owned or
occupied by the seller and
determine whether all
operational costs are
captured in the financials or
not.
Source:
DUE DILIGENCE
2.
Financ
ial DD
It aims to provide a thorough
●
understanding of all the
company’s financials,
including, but not restricted
to, audited financial
statements for the last three
years, recent unaudited
financial statements with
comparable statements of the
last year, the company’s
projections and the basis of
such projections, capital
expenditure plan, schedule
of inventory, debtors and
creditors, etc.
3.
Asset
DD
Asset due diligence reports
●
typically include a detailed
schedule of fixed assets and
their locations (if possible,
physical verification should
be done), all lease
agreements for equipment, a
schedule of sales and
purchases of major capital
equipment during the last
three to five years, real
estate deeds, mortgages,
title policies, and use
permits.
4. 5.
Human Environ
Resource mental
s DD DD
●
Human resources due
●
Due diligence related to
diligence is extensive. environmental regulation is
very important because if
●
It may include analysis
the company violates any
of total employees,
major rule, local authorities
including current
can exercise their right to
positions, vacancies, due
penalize the company, up to
for retirement, and and including, shutting it
serving notice period. down operationally.
●
Analysis of current
●
Hence, this makes
environmental audits for
salaries, bonuses paid
each property owned or
during the last three leased by the company one
years, and years of of the key types of due
service etc. diligence.
 DUE DILIGENCE
TYPES OF DUE DILIGENCE
6.
Taxes 7. Intellectual Property
DD
DD
●
Due diligence in regard
●
Almost every company
to tax liability includes
has intellectual property
a review of all taxes the
assets that they can use to
company is required to monetize their business.
pay and ensuring their
●
These intangible assets
proper calculation with are something that
no intention of under- differentiates their
reporting of taxes. products and services
from their competitors.  acquisition will ask how
●
Additionally, verify the
●
They may often comprise
status of any tax-
some of the company’s
related case pending most valuable assets.
with the tax authorities.
8.
Legal
DD
●
It includes examination and
review of the following
elements:
●
Copy of Memorandum and
Articles of Association
●
Minutes of Board Meetings
for the last three years
●
Copy of share certificates
issued to Key Management
Personnel
●
Copies of all loan
agreements, bank financing
agreements, and lines of
credit to which company is
a party etc.
9. 10.
Custom Strate
er DD gic Fit
●
Acquirers are generally also
●
As customers or clients are
very careful about
the lifeblood of any
exercising due diligence in
business, the types of due
regard to evaluating how
diligence invariably
well the target company fits
include a close look at the
in with the overall strategic
target company’s customer
business plan of the buyer.
base, with examination and
●
For e.g., a private equity
analysis.
firm considering a new
●
This includes the company’s
top customers, current credit
well the proposed target will
policies, any major
complement the firm’s
customers lost within the
existing portfolio of
past three to five years etc.
companies.

Source:
 DUE DILIGENCE
POST ACQUISITION DUE DILIGENCE
The purpose of The Post Acquisition Due Diligence is sevenfold:
To open - in depth and in To open the Operating
detail - the Operating Dynamic to the scrutiny and
Dynamic of the acquired understanding of the
company to the scrutiny and management of the
understanding of the investor. acquired company.

To create and declare To create healthy and

an emotional New open working relationship
Beginning for the between the investor and
Source: http://managementconsultants.com/postacquisition_duediligence.html
 DUE DILIGENCE
WHY DOES DUE DILIGENCE FAIL?
Insufficient Due diligence will not be very helpful if there is not enough information collected on the
●

subject to give true insight.

●
These errors occur when companies permit their own employees to complete the

Information documentation without actually getting answers to specific questions from the subject, or by
taking the provided information from the subject at face value.

Lack of Any information obtained regarding the subject of the due diligence should be checked for any
●

other evidence that could corroborate it, regardless if the information is provided freely upon
inquiry.

Verification
●
It is possible for individuals to fail to disclose vital information, so it is necessary that your
organization takes the required steps to be protected.

Disregarding ●
Red flags hold no meaning if they are not addressed nor taken into consideration
before acting.
If a due diligence investigation reveals red flags, the proper step is to then give rank
Red Flags
●

to the risk it poses and whether or not that risk is worth gambling the company over.

Source: https://centry.blog/2017/04/27/when-due-diligence-fails/
 DUE DILIGENCE

Source: https://www.investopedia.com/terms/d/duediligence.asp