There are rare occasions when due diligence is unnecessary from the perspective of an investor or rights buyer. The question should not be when it is worth commissioning due diligence, but why it is worth doing. The answer is surprisingly simple.
Is due diligence obligatory?
No one will force an investor to thoroughly check the company in which he wants to invest. However, it is in the investor’s interest to conduct such due diligence because it serves to avoid buying “a pig in a poke”. In principle, no buyer is under any obligation to do so, but conducting due diligence allows to minimize the risk of making an unsuccessful investment and due diligence helps to fully understand the mechanisms governing a given company.
Thanks to this, the buyer is fully aware of the consequences of his decision. Moreover, thanks to the research, the investor has a comprehensive view of the company, its projects, and previous activities. Having this knowledge will certainly help to better manage the company after the transaction, although it is not the only purpose for which due diligence is performed.
When then?
Before moving on to direct investment. Due diligence is most often performed in the event of an acquisition of a business, shares, or stocks, and also in the event of a merger of companies. It is also commissioned when a company is introduced to public trading, seeks external investors, or undergoes debt relief or expropriation.
It is not necessary to order a comprehensive audit. Depending on the needs and the specificity of a given company’s activity, due diligence can be performed on a selected project carried out by a given company. Such a method will allow you to save time (and money) while obtaining the needed information. That is why it is so important to define your needs before meeting with the external entity obliged to conduct the research.
External entity – acting in the buyer’s interest
Defining needs will not only help to decide on the right research path, but it will also influence the choice of appropriate experts. Depending on the specifics, these will be experts, auditors, lawyers, tax advisors.
Each of these persons is required to sign a confidentiality agreement, which is worth remembering when signing the agreement. The chosen specialist can not in any way be correlated with the seller – to provide the most objective expertise – thus acting in the interests of the buyer.
What to pay attention to
First of all, at the initial stage, it is worth determining the scope of the study, so as not to overlook issues of importance to the investor. A clue here may be the industry in which a given company operates. Our lawyers have repeatedly supported investors in due diligence in such industries as real estate, TMT, IT, private equity. They approach each transaction individually, adjusting the action to the investor’s needs on an ongoing basis. Our experts will help to determine what risks are involved in investing in a company and whether the company meets all legal conditions. In addition, KWKR lawyers are ready to provide legal support at every stage of the transaction – from market research through preparation of agreements and negotiations to the finalization of the transaction.