Due Diligence, translated as “due diligence”, is a process that consists of review deeply the financial and legal situation of a company to evaluate its degree of compliance and investigate the risks that may be acquired in relation to its purchase. This process is carried out by the buyer who, normally, contacts an external company that is an expert in purchasing audits together with the collaboration of the seller who provides the requested information.
The purpose of carrying out a Due Diligence may be to evaluate the convenience of making an investment, obtain more information about the company before making your purchase and the consequences of the change of ownership of its shares/participations. However, due diligence is not an exclusive process for the purchase and sale of companies, and can be carried out in other situations, such as the IPO of a company.
Within the legal aspects, we can highlight the review of contracts, review of licenses, industrial and intellectual property of the company, as well as the review of litigation and procedures in relation to corporate compliance and data protection, among others. In addition to the review of legal documentation, documentation on other areas of the company is usually requested, such as tax, labor and accounting. For all of the above, collaboration between professionals who are part of the process is important.
How to compile this documentation?
This process is carried out through the data room, that is, that place, software or platform where all the company's documentation will be stored under strict confidentiality and is usually accompanied by a checklist where the documentation to be collected appears. The ideal, in this process, would be to be able to control and limit what people with access can do with these documents, since this is very sensitive information of the organization. It is also important that the documentation is clearly organized to facilitate the review of the documents.
When does Due Diligence end?
The Due Diligence process should be a short but intense process; there is usually a deadline between 30 and 60 days, although it will depend on the time it takes to collect the information.
