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Due Diligence

Due Diligence: what it is, how it works, the objectives and the various types of investigation process

What’s Due Diligence: definition

Due Diligence is a term derived from British law that emphasizes the care and confidentiality with which it this process must be carried out.
The concept was coined for the first time within the Rothschild Bank in Paris to represent the due diligence necessary to assess the possible exposure of companies. 

Today the term “due diligence” is used to identify the investigation process aimed at the analysis of the company’s value and condition, an evaluation of its background and reputation in order to determine the desirability of an investment, a merger, an acquisition or any business relationship.

What’s the objective of Due Diligence?

The objective of due diligence is to assess the opportunity and convenience of the transaction, to determine the fair value of the company and to ascertain whether or not there are critical elements capable of compromising the successful outcome of the negotiation. 

Due diligence is also a guarantee for both parties of the success and speed of the transaction and allows to avoid that, after the signature of the contract, financial losses and legal consequences arise through disputes or litigations, damage to image and financial risks. For this reason the scope of a due diligence is very wide and takes into account all the information related to the target company, with particular reference to the following aspects:

  • corporate and organisational structure
  • business and reference market
  • guarantees and contractual terms
  • all the useful elements to define the price
  • critical factors of success
  • commercial strategies
  • management and administrative procedures
  • economic and financial data 
  • tax and legal aspects
  • potential risks associated with facilities, for example equipment, machinery, as well as the assignment agreement without the preliminary "qualification suppliers".

How long does the Due Diligence take?

The duration of due diligence is very variable as it depends on the quantity and level of in-depth verification and analysis activities as well as the difficulties encountered by professionals in carrying out investigations. It usually takes place between two and six months, which may vary depending on the specific case.

In which operations is it used?

Due diligence can affect the entire business or even just a part of it, like a branch of the company, and its scope is very wide.

It can be used for example in operations such as:

  • mergers, acquisitions, divestments of companies;
  • prior to an acquisition of shareholdings;
  • valuation and estimation of buildings subject to judicial proceedings, buying and selling and then, in general, secured credit exposures;
  • quotes in the stock exchange;
  • capital increase; 
  • the conclusion of a joint venture agreement.

At which stage of a purchase is a Due Diligence held?

In general, due diligence takes place after the signing of a letter of intent and before the conclusion of the preliminary contract, or after the preliminary contract.
In the latter case, it’s intended to determine whether the agreed price is adjusted downwards or upwards (the so-called “price adjustment“).

What are the different types of Due Diligence?

The most common types of due diligence, which are sometimes integrated with each other, are:

Business Due Diligence: is a detailed and targeted analysis of all the structural, operational and behavioral aspects of the Commercial Department of a company: the organizational and economical-financial structure, the market position, the characteristics and potential of the company; it’s targeted to structured SMEs, with a defined business division and that require a professional review of existing resources and business procedures.

Accounting and tax Due Diligence: analyzes the accounting and tax situation of the company, through the analysis of the financial statements and the profit-loss account, their conformity with the rules of law and tax law and their drafting in accordance with correct accounting principles, the verification of the regularity of the accounting books and VAT books, tax returns and any checks made by the tax authorities.

Legal Due Diligence: has the objective of processing and evaluating the main information related to the legal situations subjective active and passive (rights, obligations, charges, etc.) of which the target person is the holder and to detect any criticality.

Property Due Diligence: is the assessment of the condition of an asset, property or real estate, before a potential transfer of ownership. This is a useful assessment to identify potential transaction risks in order to manage them in the best possible way. 

Who carries out the Due Diligence and how much it costs?

Due diligence must be entrusted to specialized personnel and to experienced and qualified professionals; for this reason, the investigator may address himself or through a legal representative to a private investigation agency. 

Our due diligence investigators ensure the performance of a reputational investigation and a complete risk assessment, which is why they require much more in-depth examinations than a standard business information audit. The investigative process is developed through a series of successive phases and then concluded with the drafting of a final report which details the process and the results obtained. 

The investigative agency Dogma carries out Due diligence investigations in several countries, with its own local correspondents.
A business Due diligence, depending on the case and whether it is performed in Italy or abroad, can take several working days. The times and the costs are defined in precise way in the assessment and clearly indicated in the quotation.

The due diligence therefore includes a complete review of all available data in order to discover any potential risks that might affect your business or your company, to which is added an extended, accurate and complete analysis of information from open sources (Osint- Open Source intelligence) that Dogma Spa carries out with method and competence, using also dedicated software and an innovative method of analysis that evaluates multiple parameters. The data collected are then examined by senior analysts who verify the consistency of all the information collected.

"The context in which professionals operate in recent years is that of economic volatility, technological discontinuities and regulatory changes. New business models are quickly established, while others suddenly become obsolete. Adaptation and flexibility are needed to manage continuous change."

Andrea Ingo, Intelligence analyst of Dogma Spa, states in his article "The value of Information in Industry 4.0" and concludes:

"To tackle it, it is necessary to rely on a competent partner, with “privileged” access to a multitude of information and at the service of both the competitiveness of enterprises and private third parties. We are therefore in the era of the knowledge economy, which teaches us that it’s not possible to disregard data and information for any business activity."

Call the toll-free number to immediately receive a Due Diligence estimate and a private and free advice, or, use the form on the page to send us a request.

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