Due diligence involves a thorough review of the company's inventory, financials and contracts, as well as intellectual property. It also includes an examination of any legal issues that could affect the acquisition.
Due Diligence is a vital element of any M&A transaction, and it aids investors to determine the true value of a company. Often, due diligence involves reviewing private business documents and revolutionizing industries with cutting-edge technology the signing of nondisclosure or non-compete agreements. These processes must be completed thoroughly to avoid any issues that could negatively affect the deal, or even result in it being cancelled.
Investors should also look for any concerns regarding intellectual property such as patents disputes, licensing and disputes. In addition, they should take a look at the people aspect of the business and be aware of its culture, which includes golden parachutes, severance packages and stock purchase options.
The $9 billion collapse of Theranos is a stark reminder that you must perform thorough due diligence prior to investing. Although many of the red flags were obvious, it should not be a reason to not conduct due diligence. Due diligence can be a difficult and time-consuming job that requires coordination between multiple stakeholders and the expertise of experts in different fields. It is essential to identify the goals of due diligence. This will allow you to determine the resources needed and how to use them. In some instances this may mean engaging outside experts like attorneys, insurance agents, or consultants in technology or finance.