In this brief guide, we take the reader through the steps involved in a typical due diligence audit, providing you with an overview of the process, outlining where value is added for your company by undertaking each activity.
A due diligence audit is an internally conducted audit of a company that seeks to ensure that the company is ready for sale. It seeks to preempt the questions and issues that arise during a typical due diligence process, and ensure that the selling company is ready for whatever comes it way during due diligence.
A transaction backed up by a due diligence audit has a better chance of being successful.
If something is amiss during the transaction, the due diligence audit will likely bring everything back to light.
It enhances the quality of the information and will therefore allow you to make a good decision.
With that in mind, a due diligence audit has a different importance level, based on the perspective.
In the end, due diligence is an important part of making a transaction, no matter whose side you are on.
The due diligence audit mimics a buyer’s due diligence process, asking challenging questions of every layer of the company’s activities.
Thus, your due diligence audit should include:
DealRoom has developed a template for each, which although designed for the buy-side, can just as easily be used for a due diligence audit.
The explicit purpose of a due diligence audit is to prepare a company for questions that the buyer will ask during due diligence.
But there’s another, more implicit, purpose to the process: adding value for your company, regardless or whether you find a suitable buyer.
A due diligence audit can be thought of as a detailed form of internal audit for your company.
Areas where value is added include:
In a table format:
The two biggest challenges involved in conducting a due diligence audit are:
A good strategy is to put together a due diligence audit team - much like an internal audit team - that brings a range of perspectives to proceedings.
That is, it’s better if your HR manager isn’t the only one asking questions about HR, and your operations manager isn’t alone in probing your company’s operations.
Beyond this, the challenges involved in conducting the audit are, in many ways, opportunities.
As the section above noted, finding gaps in your company and how it operates can generate significant value if addressed properly.
Thus, you shouldn’t be afraid to find gaps, weaknesses, and even irregularities - counter-intuitively, this is key to unlocking value within your company.
DealRoom has developed a platform that is designed especially for the due diligence process, whatever angle that you happen to be approaching a deal from (buyer, seller, or intermediary).
This differentiates us from most of the more generalist virtual data rooms on the market, and provides due diligence participants with tools that most other VDRs overlook.
Talk to us today about how we can enhance your company’s due diligence audit.