The Due Diligence Process and Pragmatic Considerations

Abstract

The goal of the discussions thus far has been to explain the purpose of, and the process for, conducting a well-conceived due diligence investigation of a closely held business in the context of various types of business transactions. It has been explained that, in a nutshell, the party conducting due diligence is testing the veracity of the story that has been posited about the business that is the subject of the review. Throughout the investigation, the buyer or investor is seeking information about the four business cornerstones: the company, the business operations, the valuation, and the personnel who participate in the operation of the business (Chapter 2). Although the term due diligence describes a generic process of review, the level and focus of the scrutiny can vary greatly, depending on the company, type of transaction, and the deal terms. Therefore, it has been recommended that, before launching the due diligence investigation, a due diligence plan should be prepared (Chapter 2). The plan dissects the components of the transaction in light of each of the business cornerstones and thereby provides a bird’s-eye view of the most significant topics that the buyer has identified based on the information known at the time. The due diligence plan is an extremely helpful aid in formulating the strategy for the due diligence investigation of the transaction under consideration. After the plan has been fleshed out, the party conducting the due diligence should have a clear vision regarding what he or she wants verified before deciding whether to proceed with the proposed transaction.