Due diligence in the merger or acquisition of commercial property or a business

Written By Steps To Faculty Published June 14th, 2010

Due diligence is essentially a term used to describe several concepts that involve the evaluation or investigation of a person or a business before the signing of a contract. In some cases this can be a legal obligation. However, in most cases this procedure occurs voluntarily. Commonly due diligence is conducted in various business spheres when potential acquirers assess the assets of a target company that they intend to acquire. In the business of mergers and acquisition the concept of due diligence plays an imperative role. Let’s take a closer look.

Step 1 Be weary of shaky information

Mergers and acquisitions can be regarded as a corporate management strategy that involves the buying, selling and combining of various companies or the assets from a particular company with the aim of growing a company, offering financial aid or creating a new business entity. Given the risky nature of mergers and acquisitions, due diligence is an imperative measure to safeguard against potential pitfalls such as operational losses. In the course of conducting mergers and acquisition ventures, due diligence helps to confirm that a business or an asset is what it appears to be. Due diligence cautions the buyer of the underlying risks of acquiring a particular asset or a business and can serve as a caveat emptor for bankrupt or fraudulent firms.

Step 2 Look at the big financial picture

Due diligence can warn an investor of potential pitfalls and thus reduces acquisition risks prior to the finalization of a purchase. A systematic and effective due diligence procedure and avert financial calamity brought about by the purchase of unprofitable assets or businesses or commercial property. Due diligence in mergers and acquisitions verifies the accuracy and legitimacy of the sellers representations thus disclosing underlying problems and financial issues

Step 3 Make informed decisions

Due diligence exposes key aspects of a business such as the market position, vendor customer relationships, legal liabilities, creditor relationships and financial analysis statement among many other aspects.

Remember before putting your hard earned money into commercial property or another person’s business, check out all the essential details through a due diligence procedure.


Roger Due

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