Due Diligence.doc

Due Diligence •

Process of Investigation conducted by parties involved in a business transaction.

Types: 1. Financial due diligence – Qualitative and Quantitative analysis of organization’s financial performance to get a sense of earnings on a normalized basis.  Performance of a business  Assumptions of the projections  Analysis of the assets and liabilities  Pricing of raw material at par with market value  Finished goods of stock unlikely to be sold in a near few month  Liability on the purchase of inventory  Central and sales tax 

Seller nexus in other states

2. Strategic due diligence - Provide the acquiring organization the information to drive change and improve profitability or help the buyer determine that the deal is not worth pursuing. 

Does it make sense?

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Will the acquisition benefit the organization?

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Customers supply chain

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Currently manufacture?

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Who does it sell?

3.Operational due diligence - Transaction to determine what the buyer can do to realize improvements in productivity and profitability. 

Examine work centres

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Material flow and stock generation

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Inventory level

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Scrap generation

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Lean manufacturing principles to achieve maximum profitability

4.. IT due diligence – Money needed by the buyer to invest to operate efficiently. 

Current level of technology

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Is it up to date ?

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Company use the existing technology

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Sufficient to allow organization to continue to grow?

5.Human Capital due diligence – People related issues . 

Cultural differences aren’t understood ,simply ignored

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Cuts in pay/ benefit create illwill reduce productivity

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Confusion amongst staff when management doesn’t communicate its business goals Lack of an effective integration plan People Involved: 1. Legal Professionals 2. Financial Professionals 3. Operational Professionals Parties Involved: Employees, Trade Unions, Share holders and Creditors, Vendors, Customers, Government, Society. Steps in Due Diligence:

Planning phase – Data collection phase – Data analysis phase – Report finalisation phase – Due diligence reporting