Due diligence involves a thorough investigation of the business’s inventory contract, financials, and financials and intellectual property. It also includes an review of any legal issues that could affect the acquisition.
Due Diligence is a crucial element in any M&A deal as it assists investors to determine the true worth of a company. Due diligence often involves looking over confidential documents and signing Non-Disclosure Agreements or Non-Compete Contracts. These processes must be completed completely to avoid any issues that could negatively impact the deal, or cause it to fall through.
Investors should also look for any issues with intellectual property which include patents, disputes and licensing. Investors should also take a look at the culture of the business and its severance plan, golden parachutes, and stock purchase options.
The $9 billion collapse of Theranos is an indisputable reminder to be thorough in your due diligence prior to investing. Although many of the red flags were obvious, this should not be a reason to skip this process. Due diligence can be a lengthy task that takes a lot of time and requires coordination among multiple stakeholders and the expertise of professionals in different areas. It is crucial to determine the objectives of your due diligence, which will help you decide the resources needed and what you can learn from it. In certain situations, you may need to consult with experts from outside, such as insurance agents, lawyers and financial or technology experts.
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