Due Diligence

Khandhar Mehta and Shah

Introduction

Businesses ought to make many strategic decisions that affect their operations, profitability, and growth in the years to come.

Some of these strategic decisions, such as investment/disinvestment, bank loan, acquisition, merger/demerger, business partnership, or organizational effectiveness initiative, require critical consideration. This is where due Diligence helps, meaning that research and analysis are conducted to determine if the transaction is feasible and value-generating for the business or if it will face significant obstacles or any concerns that may result in bleak outcomes. Therefore, due Diligence must be accurate, clear, and timely for it to play a pivotal role in the company’s strategic management decisions. KMS provides due diligence services to clients to help them make informed decisions.

We, at KMS, engage in obtaining all the information necessary for an in-depth study and analysis of the transaction within the timelines and provide the best recommendation to our clients. We ensure that our review helps you to take the transaction forward with cautious strategies so that it does not end up as a costly mistake. Our dedicated and sincere due diligence professionals provide due Diligence and transaction advisory services to clients concerning the legal, financial, business environment, and tax domains of a business’s operations.
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Due Diligence Services

The various types of due diligence services include:


Financial due Diligence

financial due Diligence, we conduct an in-depth study of the present and historical financial statements, accounts, and the relevant compliances to identify the potential risk areas. Such an investigation leads to the identification of the key revenue items, cost items, non-performing segments, assets and liabilities, non-core assets, hidden or contingent liabilities, and similar other data-related trends.

The risk of taxes may also influence any financial transaction of the businesses. Hence, financial due Diligence also includes an analysis from the tax perspective. It answers questions such as – Are all the tax payment deadlines followed? Is there any trend of unpredictability in profits? Are there any liabilities that may harm the business in the years to come? Are the assets valued correctly? Is there any additional direct or indirect tax applicable to the transaction?


Legal due Diligence

There are many legal risks in a business restructuring transaction, and hence a profound analysis into it facilitates the study of the transaction. Therefore, we conduct a comprehensive assessment of assets, securities, existing agreements, taxes, intellectual property, contracts, and many more. Furthermore, we have the legal experts required to draft the transaction contracts and agreements, taking into consideration the legal aspects and the business angle of the transaction.

Our legal experts also get involved in the negotiation process on behalf of the clients. It helps to avoid any kind of possible legal pitfalls that may diminish the value of the transaction. A thorough analysis of the legal risks and potential solutions for these risks enables the KMS team to draft a legitimate agreement with the least threats possible. KMS aims to determine all the liabilities, manage the risks, and negotiate the optimum cost-benefit for the advantage of the client company.


Customer due diligence

Customer due diligence is essential to find out the relevant information regarding the customers and evaluate them against any risks of money laundering and terrorist financing activities. It is a way to identify your customers and their risk profile. In some countries, it is conducted under the legal ambit, and if not followed by companies, they may be charged penalties.

We assist our clients with KYC checks, including full name, residential address, place, and date of birth, gender, nationality, marital status, contact number, email address, occupation, specimen signature, government-issued identification number, and tax number. Depending on the transaction, the company may require further due Diligence of customers. Furthermore, regular customer monitoring is also conducted to keep a tab on the customer’s risk profile that may change over time.


Vendor due Diligence

Before entering into an agreement with the vendors, businesses need to check whether the vendor has the financial capability, operational competence, and a sound system of corporate governance. This is required for any company to decide whether to enter into an agreement with them or not so that the risk to reputation and compliance is minimized.

Besides, it is also critical to analyze the business relationship that the company has with its vendors to identify the compatibility of both the companies. Such due Diligence also enables the company to identify any changes at the vendor’s end and the impact it may have on the relationship so that a better deal can be arranged for.


M&A due Diligence

Due Diligence is critical in transactions when two companies plan to merge or when one intends to acquire another to understand if the deal will be beneficial or not. In this process, our expert professionals gather information about the target company, its customers, technology used, assets and liabilities, suppliers, financials, and intellectual property.

This information enables both the companies involved in the transaction to adjust their expectations from the business restructuring. It helps in risk identification, the definition of a clear structure, and better reputation management.


Technical and other due Diligence

Assessment of the technical feasibility of the transaction is a critical requirement to gauge if the company is ready to go ahead with it, given the technological capability, financial resources, and human talent. Some transactions also require an investigation into the educational, professional, and financial backgrounds of the promoters of the company, company structure, and ownership. There are some other transactions, which require us to assess the internal and external environment of a company to check for commercial viability. Operational due Diligence is another service, which studies the company’s daily operations, procedures in place, internal controls, and business processes that are required to identify any operational inefficiencies.

Due Diligence Process

Why Kms?

We have a big team of experts in various fields of accounting, taxation, advisory, secretarial, and legal compliance matters across various sectors and jurisdictions that will facilitate the provision of the best due diligence services to our clients.
Our team of due diligence professionals provide insights on the proposed transaction depending on the client’s internal resources, own research, and applying the industry best practices into execution.
We generate insightful due diligence reports based on our business-oriented analysis, and our clients use these in their strategic decision making and negotiation processes.
KMS’s deep ingrained knowledge of multiple sectors and experience in the same enable it to deliver value-added services to its clients based on the strategic, technological, financial, and logistical perspective of the complex issues at hand.
Our unique combination of financial expertise, commercial acumen, taxation proficiency, and understanding of key management and their relationships enables us to explore every aspect of the transaction, which is critical for its planning and final execution.
We take up the advisory role quite seriously and hence along with the in-house project teams, discover all the unanticipated sides of the transaction to provide quality advice through observations on the changes due to the transaction and thereby support throughout its execution.

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frequently asked questions(faqs)

Due Diligence is defined as an assessment or audit of a business or a person before entering into any agreement or contract with that business or person. Due Diligence involves research and analysis of a subject to identify any risks or concerns that it currently has or which are expected in the future. It is conducted before entering into a transaction like acquisition, merger, funding, business partnership, or investment.
The team involved in the study and evaluation of the transaction prepare a report with all the details required to make the final decision regarding the transaction. This report is called the due diligence report.

The key information included in a due diligence report contains information about the company profile, financial information, employment and labor, infrastructure, agreements, supplier’s data, customer’s data, and legal information.

•The company profile includes information on the company name, registered address, business form, geographical presence, capitalization, articles of association, memorandum of association, and shareholders and their percent of shareholding.

• Financial information includes copies of audited financial statements for the last few years, correspondence between auditors and company representatives, tax returns for the last five years, financial models and forecasts, and board of directors’ presentations.

• Information about employment and labor includes a list of officers, directors and senior management and their biographies, list of employees and their designation, department, location, and compensation, copies of all human resources policies and employee handbooks, any cases related to employment law, and details of any employee-specific incentives or benefits.

• Information about agreements includes all customer agreements, licenses, subscriptions, material contracts, investment banker agreements, real estate leases, joint venture agreements, and any marketing, sales or promotion agreements.

• Legal information includes copies of all government licenses, any litigation, proceedings, investigations conducted on the company, and copies of documents filed with government agencies.

• Infrastructure-related information includes a legal description of all real properties, all appraisals, all studies and site evaluations, consultant-generated reports, and title issuance policies.

• Supplier and customer information includes a list of all customers along with their sales volume, list of all suppliers along with their purchase volume, and list of any complaints or disputes related to customers or suppliers.
A list of all the items/factors that the evaluator intends to study and assess in the due diligence process is a due diligence checklist. The key items that feature in this list include company profiling, taxes, contracts, employees list, list of vendors, intellectual property, material assets, contracts, litigation, and compliance matters.