Financial Due Diligence Services: Mergers and Acquisitions Audit, Process & Solutions
Financial Due diligence is an integral part of any merger and acquisition deal, providing a comprehensive review of all aspects of a business. The Due Diligence process involves analysing the books, financial status, and operations of a company, followed by thorough investigations and audits of a potential deal or investment opportunity. This includes Due Diligence Audit and verification of facts and figures to ensure the accuracy of claims made by the seller during the deal.
Financial Due Diligence Services are vital in assessing the financial health of a company, while M&A Due Diligence Services ensure a smooth process for Due Diligence for Mergers and Acquisitions. These Due Diligence Solutions aim to confirm the legitimacy of information and mitigate risks before closing the deal.
These investigations are typically undertaken by investors and companies involved in Merger Due Diligence. Depending on the nature and scale of the business, there are various types of Due Diligence services, such as:
- Financial Due Diligence
- Legal Due Diligence
- Operational Due Diligence
- Tax Due Diligence
- Environmental Due Diligence
- Market Due Diligence
- Risk and Insurance Due Diligence
Each type is tailored to evaluate specific areas, ensuring a robust Due Diligence Merger Acquisition process and informed decision-making for long-term success.
Financial Due Diligence
Financial Due Diligence is considered to be the most significant type of due diligence given the fact that usually the valuation of the business is done based on the financial statements. In financial due diligence, the role of the agency undertaking the activity of due diligence is to check whether the financial statements and other financial records pitched and showcased by the seller hold the real and actual worth or not. This engagement includes comprehensive and thorough testing of the past audited financial statements, current un-audited financial statements, projected financial statements along with the comparison of figures before and after the deal. All the figures reported in the financial statements such as deposits, advances, debtors, creditors, loans, guarantees, fixed assets, current assets, bank balances, etc. undergo extensive testing.
Tax Due Diligence
Tax Due Diligence is another major type of due diligence especially in a country like India, where there is a gamut of tax laws applicable to every business. Under tax due diligence, the experts evaluate the reporting of incomes and expenses to the various tax authorities, both direct and indirect, to ensure that neither the income has been under-reported nor the expenses have been over-reported to pay fewer taxes. In addition to this, various reconciliations of incomes and expenses are done to establish if the same reporting is done to various authorities such as indirect tax authorities, direct tax authorities, ROC, DGFT, etc. Furthermore, the experts also determine the current status and exposure due to any pending tax disputes, assessments, departmental audits, scrutiny, etc. to the company.
Legal Due Diligence
Legal Due Diligence is essential before putting the hands-on on any business. A team of legal experts evaluates the risks that may arise on account of any business contracts, representations, warranties, share purchase agreements, loan agreements, customer contracts among other things. Various legal documents of the company such as Memorandum of Association (MOA), Articles of Association (AOA), Minutes of Board Meetings, etc. are also reviewed before giving an opinion on the legal risks attached to the business including any contingent liabilities for Legal due diligence.
Other Areas of Due Diligence
Some other areas of due diligence include Technical Due Diligence, Human Resource Due Diligence, Environmental Due Diligence, Intellectual Property Due Diligence, etc. where the experts evaluate the showcased picture of business with the real-life picture of the business and provide the report to the acquirer for his decision making.
Legal Due Diligence in Mergers and Acquisitions is also done by banks prior to disbursing loans, investees before pitching their business to the investors, promoters before selling their business to understand its real worth.
How ASC Group Helps on Due Diligence
ASC Group team of professionals understands the tax and regulatory environment in India and possesses enough experience to perform the Financial, tax, and Legal due diligence audit of any company.
- Recognizing and measuring the industry and deal-specific risks and opportunities.
- Assessing the quality and reasonableness of historical and projected earnings and cash flows assessing the quality of assets.
- Identifying hidden costs, commitments, and contingencies.
- Identifying and quantifying tax exposures.
- Determining & assessing all the loopholes & indebtedness that can be the deal-breakers
- Stressing on issues likely to affect the purchase price or contract conditions.
FREQUENTLY ASKED QUESTIONS
The need for due diligence arises whenever the business is going to enter into a potential and significant deal. This can include mergers and acquisitions, financing from a financial institution, etc. Due diligence helps determine the risk and reward of any potential deal. It indicates the current position of the company and helps in making informed decision-making. Often, the due diligence report becomes the base to renegotiate the deal.
It depends upon multiple factors like the deal or the transaction being entered into, the person of whom due diligence is being carried out, the scope of the due diligence etc. It can take anywhere between 30 days to as long as 6 months.
While the due diligence can be carried out by any person or authority, it is often outsourced to a third-party entity like chartered accountants who are experts in financial matters and draw out reasonable conclusions from the due diligence exercise.
In the case of corporate and business due diligence, the following things should be checked:
- Overview of the organizational structure
- List of shareholders and security holders
- Current by-laws of the company
- List of work outsourced by the company to consultants, freelancers, etc.
- Ownership information
- Major competitors of the company
- Annual reports and financial statements for the last 3-5 years
