PROJECT PRESENTATION ON

SIGNIFICANCE OF DUE DILIGENCE AS

A PROCEDURE

Name: Nagatulsi Motamarri

LPGD/OC19/1241
Specialization: Finance Management

WELINGKAR INSTITUTE OF MANAGEMENT

DEVELOPMENT & RESEARCH
YEAR OF SUBMISSION: FEBRUARY 2021
 INTRODUCTION
Due diligence is an investigation, audit, or review performed to confirm the
facts of a matter under consideration. In the financial world, due
diligence requires an examination of financial records before entering a
proposed transaction with another party.
The aim of due diligence is to check the valuation of assets and liabilities,
assess the risks within a business, and identify areas for further investigation;
this enables an investor or purchaser to make informed investment decisions.
 History Of Due Diligence
 Due Diligence In Business
 Role Of Due Diligence
 Areas Of Due Diligence
 Objective Of Due Diligence
 Importance Of Due Diligence
 BENEFITS OF DUE DILIGENCE
• Administration and Ownership
• Capitalization
• Business Competitors and Industries
• Balance Sheet Review
• Revenue, Profit and Margin Bearings
• Risks
• Capital History/Options and Probabilities
• Expectations
 DUE DILIGENCE INQUIRY

Human
Administrative Financial Asset
Resource

Intellectual
Taxes Environmental Legal
Property

Customer Strategic Fit

 DUE DILIGENCE CHECKLIST

Stockholder Securities Financing

Corporate Records Material Contracts
Information Issuances Documents

Financial Sales and Intellectual

Management/Employees Real Property
Information Marketing Property

Governmental
IT Systems and Litigation and
Environmental Regulations and Insurance Taxes
Networks Audits
Filing
 ELEMENTS OF DUE DILIGENCE

 General  Technological
 Organization and Ownership  Physical asset
 Compliance and regulation  Intellectual property
 Administrative  Human Resources
 Accounting/financial  Commercial
 Operational  Environmental
 Tax  Cultural
 Legal  Strategic
 PROCEDURE INVOLVED IN THE DUE
DILIGENCE PROCESS
I. PRE-DILIGENCE PROCESS
Primary activity of management of documentation and people.
Stages of Due
II. DILIGENCE PROCESS Diligence
Due Diligence Report is submitted by professional

• Deal Breakers Pre-Diligence Diligence Post

• Deal Diluters Process Process Diligence
• Deal Cautioner
• Deal Makers

III. POST DILIGENCE

Post diligence process helps the investor in negotiating the deal.
 TECHNIQUES OF DUE DILIGENCE PROCESS
AND RISK ASSESSMENT
• Analyze the Capitalization

• Resources Acquisition, And Margin

• Rivals Comparative Study

• Valuation Multiples

• Administration and Share Ownership

• Balance Sheet

• History of Stock Costing

• Stock Suspension

• Examine Long and Short-Term Risks

 TIPS TO CONDUCT DUE DILIGENCE PROCESS
THE RIGHT WAY
 Use a Diligence Management Software
 Start Early
 Utilize Checklists
 Address Potential Risks Throughout the Process
 Employ Experts

TARGETS IN THE DUE DILIGENCE PROCESS

 Mergers & Acquisitions
 Securities Sales
 IPOs
 Banking
 QUESTIONS RELATED TO
DUE DILIGENCE
1. How can companies use due diligence?

2. When to conduct due diligence?

3. Can companies capitalize due diligence costs?

4. Who can conduct due diligence?

5. Who can prepare a due diligence report?

6. What happens when due diligence expires?

7. Purpose of operations due diligence?

8. How to perform due diligence?

 DUE DILIGENCE PROCESS IN M&A
 Evaluate Goals of the Project

 Analyze of Business Financials

 Thorough Inspection of Documents

 Business Plan and Model Analysis

 Final Offering Formation

 Risk Management
DUE DILIGENCE FOR PURCHASING
COMMERCIAL PROPERTY
 Environmental Concerns

 Location

 Building inspection

 Code Compliance

 Performance Data
 Evaluate Goals of the Project

Analyze of Business Financials

DUE DILIGENCE Thorough Inspection of

PROCESS IN MERGERS Documents

& ACQUISITION
Business Plan and Model Analysis

Final Offering Formation

Risk Management
 DUE DILIGENCE FOR PURCHASING
COMMERCIAL PROPERTY

ENVIRONMENTAL LOCATION BUILDING CODE COMPLIANCE PERFORMANCE

CONCERNS INSPECTION DATA
 DUE DILIGENCE FOR ADDING A
VENDOR
• Is the ordering process easy and straightforward?

• Do they have multiple warehouses in case a product is out of stock at one site?

• Is a warehouse close enough that shipping costs will be minimal?

• From the time of the order, how long until it arrives at your door?

• How often do they bill and what are the terms?

• If the company is manufacturing products for you, are they large enough that you can feel

confident that any money paid upfront is safe?

• Are they willing to put special pricing in writing?

 Ask for three
Copies of degrees, Test their skills to
references
certifications, and assure they have
and personally
experience. core knowledge.
verify at least two.

DUE DILIGENCE
Perform a credit
FOR HIRING AN Psychological
testing is Perform a
check if the

EMPLOYEE important for

high stress
background
check.
position involves
access to financial
accounts or other
positions.
related position.

Conduct an
interview and ask
another trusted
person to conduct
another.
 DUE DILIGENCE FOR STOCK
INVESTORS

Analyze the Revenue, Management

Competitors Valuation
Capitalization Profit, and and Share
and Industries Multiples
of the Company Margin Trends Ownership

Examine Long
Stock Dilution Stock Price
and Short-term Expectations Balance Sheet
Possibilities History
Risks
 Include Include an exit strategy

Consider Consider entering a partnership

DUE DILIGENCE BASICS

Figure out the harvest strategy for your
FOR STARTUP Figure out investment.
INVESTMENTS
Choose Choose a startup with promising products.

Look Look at the growth plan of the business

 Understand Your Financial Situation

Accounting Procedures and Financial

Statements

Size

DUE DILIGENCE ON A Human Resources Practices

PRIVATE COMPANY Legal

Valuation

Management and Leadership

The Business
 CHALLENGES OF DUE DILIGENCE
• Legal and regulatory requirements.

• Buying a private company draws more scrutiny than buying a publicly traded company

• Foreign Corrupt Practices Act and international accounting standards.

• Every deal is unique.

• Sellers may not be ready to step aside.

• May take 12 to 16 months for a certified exit planning advisor.

• Sellers may not start preparing information soon enough

• Companies must keep on top of changing regulations

• Sellers may be reticent to provide all information requested by the buyer

 CONCLUSION OF DUE DILIGENCE
• Inspection and risk assessment

• Background check

• Reveal misrepresentation and fraudulent dealings

• Confidential, legal, or financial and other material information

• In-depth research and study

• Never easy

• Straightforward and productive

• Critical to a deal’s success

Thank You