Due Diligence (dd) designates the "“required care"”, with which with the purchase and/or sales by enterprise participation or real estates the contract object in the apron of the acquisition is examined. Due Diligence examinations contain in particular a systematic strength/weakness analysis of the purchase object, an analysis of the risks connected with the purchase as well as a founded evaluation of the object. The subject of the examinations are for instance balances, personnel and material resources, strategic positioning, legal and financial risks, environmental loads. Aimed for Dealbreakern so mentioned one searches, i.e. after circumstances, which could oppose a purchase - e.g. Refuse dumps with the purchase of land or unsettled trademark laws with the enterprise purchase. Recognized risks can be either trips for an abort of the negotiations or basis of a contractual consideration in the form of price discounts or warranties.

Basis is naturally a preliminary agreement or type character an OF Intent, in which an appropriate period for the Due Diligence examination is agreed upon. Further regularly access to the necessary information and data as well as if necessary the payment of a fee are made for that with Nichtkauf the the subject of such an agreement. For project examinations milestone reports so mentioned are quite helpful (see also: Milestone), which show the condition of the respective project in a short summary.

For the execution of a Due Diligence not only experienced lawyers and chartered accoutant are necessary, but, depending upon extent of the dd, also specialists with specific knowledge, e.g. in this area. Knowledge of the industry or special topic areas such as information technology, architect or building expert. Depending upon size and industry of the enterprise which can be bought Due Diligence teams with 20 are quite conceivable and more team members.

Criteria of an Due Diligence examination

If an enterprise wants another enterprise or a division to buy or take over, an evaluation of the enterprise is mostly accomplished before.

Criteria of such an evaluation essentially are:

• Quality of the management and the guidance persons
• Qualification of the coworkers and their change readiness
• Presence of clear goals of the enterprise or division
• Clear distribution of budgets
• Closed or open information politics and enterprise communication in the house
• Documented expiration processes and process orientation
• Degree of the customer satisfaction and presence of a measuring instrument
• Height of the coworker satisfaction and presence of a coworker questioning
• Evaluation of the social and social responsibility/image of the enterprise in the public
• Evaluation of the results and balances of the enterprise
• Evaluation of the presence of a quality management in the house
• Analysis and evaluation of the legal, in particular tax and under company law, firm's structures for purposes of the risk analysis and organization optimization.

As the listing of the criteria shows, the yield capacity of the enterprise plays alone a role rather subordinated. More importantly - in particular for private Equity investor - those are soft Factors, like quality of the reporting (dd report) or the much sworn to clear distribution of the budgets.

Phases during the Due Diligence process

• Strategy and planning phase
• Contact and sounding phase
• Type character OF Intent (LoI)
• Analysis and negotiation phase
• Conclusion phase
• Post office audit phase

Arrangement of a Due Diligence report

• 1. Test order
• 2. Extent of the testing
• 3. Fundamental information about the intended transaction
• 4. A goal and purpose of the transaction
• 5. Analyses:
• - A) of the legal situation (legal Due Diligence)
• - b) of the fiscal situation (Tax Due Diligence)
• - C) of the financialeconomical situation (Financial Due Diligence)
• - D) of market, industry and strategy (Market/Commercial Due Diligence)
• - e) of the environmental compatibility (Environmental Due Diligence)
• - f) of the insurance protection (Insurance Due Diligence)
• - g) of the technology (Technical Due Diligence)
• Recapitulatory result
• Concluding remark
• Appendix

Buyers Due Diligence

The buyer of an enterprise arranges the Due Diligence. It places the specialists necessary from its view (chartered accoutant, attorneys, environmental specialists etc.), who examine those for it company who can be acquired. The result of the investigation flows then into the purchase price suggestion of the buyer.

Vendors Due Diligence

The salesman prepares Due arranged Diligence its enterprise by for a sales. It is after the Due Diligence able to recognize and eliminate weak points of the enterprise. In this way it is relatively safe before negative surprises after a Buyers Due Diligence.

Outsourcing Due Diligence

In the context of Request for Proposals (RFP) and Request for information (RFI) specially in the IT and Business Process outsourcing (BPO) - the offerers of services accomplish range with the writing out in many cases a Due Diligence. The emphasis is different depending upon risk and height of the potenziellen contract. Important aspects e.g. are. Number, profile and content of coworkers who can be taken over, efficiency of the processes, age and value of the IT fixed assets such as servers, PC or servicing contracts. Only after execution a binding offer can be usually made to the writing out. However the process of the Due Diligence is not in this range a warranty for a successful and profitable business relation between the writing out and the winner of the advertisement.

Points of criticism of a Due Diligence

• One of the weak points of a dd is the subjective attitude of the plotters, which pursue i.d.R. the interests of the clients.
• By the possibility of counting in the tax and financial area differently the cross-linking won of the information is made more difficult.
• The prognoses are based on evaluations of the past (e.g. balances of the last three years), from which necessarily a prognosis cannot be derived. For example the data must be settled around special factors from the past (e.g. extraordinary yields/expenditures).
• The of the individual dd ranges is difficult to judge, and/or to weights, since these on the global goal of the transaction depend.

Literature

• Ku, Michael Silvio: "“The validity relating to the law on shares of the execution of a Due Diligence on the occasion of an enterprise purchase. With Due Diligence check list for the goal company"”. Peter long publishing house, Frankfurt/Main 2005. ISBN 3-631-53939-8
• Berens, W.; Browner, H.U.; Bush, J. (Hrsg.): Due Diligence with enterprise acquisitions. 4. Edition. Poeschel publishing house, Stuttgart 2005. ISBN 3-7910-2338-1
• Magazine credit practice 1/2001

Related links

• The Due Dilligence side Institut of the chartered accoutants (IDW), BMS Consulting GmbH and the chair for Controlling of the William university
• On-line check lists about Due Diligence
• Expert contribution about Due Diligence

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