Corporate houses and big businesses often go for due diligence before taking big decisions on joint venture or merger & acquisitions. In fact, all their decisions to enter into a partnership with any other firm or invest in some other ventures are not complete without prior information on virtually every aspect of the concerned party. Most big organizations take this route as it helps get them a detained verification, audit or investigation into the other party or individual in consideration.
When due diligence is done prior to an alliance, it gives a company an opportunity to be aware of its potential partner and completely understand its different facets, be it creditworthiness, reputation in the market, payment terms & schedules to vendors, employee sentiment and also about its debtors and creditors. What’s more, due diligence can also bring inside-out information related to the potential suitor’s balance sheet, profit & loss account, actual turnover of the company, loan default status and criminal cases against its directors.
Here are some of common types of corporate due diligence that premier organizations and corporate houses often avail before big decisions in regard to alliance –
Joint Venture/Partnership Due Diligence
When a big company plans a partnership move with another company it always takes things in a systematic manner and thus looks for due diligence. This step is done to seek adequate and appropriate information on the potential company’s financial and operational strengths. The idea is also to understand about the management and managerial aspects related to the target company so that the proposed alliance can flourish if it materializes.
Vendor Due Diligence
A lot of companies often seek information on their vendors to be sure about quality of raw materials. So, most of them always seek information on the quality of raw materials while some companies are also concerned about the delivery schedule that vendors follow in supplying the raw material. Since raw material supply is done with payment before hand in some cases, this gets many companies worries about whether their advance is safe or whether vendor is doing some fraud with their client.
Creditor Due Diligence
In the corporate world it’s a common practice to seek loan of big amount so there is always an element of risk involved both for the parties, i.e. lender and the borrower. While lenders won’t give away big loans before getting paperwork and their own due diligence, in some cases borrowers too get due diligence done on the lender to understand their creditworthiness and its financial strength to give away huge loans. After all, there is a big processing fee involved in getting a loan sanctioned and borrowers often don’t want to risk that money to a company or syndicate not capable of lending.
Debtor Due Diligence
Many companies hire an expert team for debtor due diligence as they seek information on the repaying capacity and financial health of a customer. With cases of loan default so common and rampant, lending organizations often have no choice but to get due diligence on the financial background and asset of borrowers. And in some cases where the borrower is gone missing, due diligence can also be done to locate him for further course of action.
Individual Due Diligence
Companies also do alliance with individuals for various reasons and in such cases they also need to get done due diligence on that person to add value to their decision. With individual due diligence, it’s possible to check different aspects of any person including their financial health, their market reputation, their work ethics and so on.
Customer/Distributor Due Diligence
Top companies routinely turn to detective agencies in Mumbai for due diligence on their customer or distributor whom them deliver raw material or other supply. Some companies who often lend big money to customer also hire expert for due diligence to check their customer and their financial reputation in the market. It’s also a common practice among corporate houses to seek information on their distributor with the view to check whether it’s harming the interest by supplying the product of a competitor.