What is commercial due diligence?
Commercial due diligence is the process of inspecting the business you are buying. It's similar to buying a house —you do an inspection before purchasing the house. The objective of due diligence is to have a full understanding of the target company’s liabilities and strengths, in order to be aware of the potential risks and calculate the Return on Investment of the business purchase. It is important not to view due diligence as a mere formality. Conducting due diligence is the step in the buying process that is going to help you determine whether it’s a good investment to continue with the business acquisition.
Why is conducting M&A due diligence important?
Avoid risks when buying a business
When you conduct commercial due diligence, you reduce the risks of making a mistake when making an acquisition. You make an in-depth investigation to ensure the company you are purchasing is worth its price and that it is free of debts or other liabilities.
Keep the court in your favor
If you make an acquisition and the seller gives fake information about the business you’re buying, in order to enforce your rights, you have to go to court. Unfortunately, a court will not take your claims seriously if you did not conduct commercial due diligence before making the purchase. It is very likely the judge will not act in your favor because it is the buyer’s responsibility to do due diligence in any Mergers and Acquisitions transaction. ...