When entering into a business agreement – a merger, acquisition, investment, or partnership; conducting proper due diligence is important.

Here comes the role of professional due diligence services in India who use strategic methods and conduct thorough investigation and analysis to assess the risks, opportunities and compliance of business, property or investment before finalizing the deal.

What is Due Diligence?

Due Diligence is a thorough appraisal of a business or asset. It is conducted by reliable experts before a deal is finalized. The due diligence findings help the investors, buyers and lenders understand what they are getting into.

There are various types of due diligence, but the most common and widely used are legal due diligence and financial due diligence. Both play different roles but have a common aim of risk assessment and decision-making.

What is Legal Due Diligence?

Legal Due Diligence is a review of legal risks, contracts, compliance and documentation about a business or transaction. Professional legal due diligence services in India examine contracts, licenses, litigation history and regulatory filings, ownership titles and intellectual property to ensure the entity or asset meets the legal and regulatory norms. The findings of this process help the investors, buyers or partners to make informed decisions and avoid any future issues.

The expert service provider covers significant areas including business structure and ownership, statutory regulatory compliance, contracts and agreements, litigation and disputes, intellectual property rights, employment and labour law compliance and licenses and permits.

Importance of Legal Due Diligence

• Protection against regulatory penalties and legal disputes
• Helps validate ownership of assets and rights
• Avoid acquiring hidden liabilities
• Ensures the obligations of contracts are honoured after the transaction.

What is Financial Due Diligence?

Financial Due Diligence, conducted by professional and expert financial due diligence services in India is the process is assessing the financial health, performance and accuracy of the company’s financial statements and projections.

It is a detailed evaluation conducted by the experts. The company’s financial records, performance and projections are evaluated to verify accuracy and assess the financial health of the business before a transaction like investment, merger or acquisition. The due diligence specialists analyze income statements, balance sheets, cash flows, debt, tax liabilities and working capital to identify any red flags, validate valuation and ensure there are no hidden financial risks.

The experts cover the major areas in the due diligence process including historical financial performance, revenue recognition and expenses, taxation, debt and liabilities, working capital, internal controls financial systems and forecasts and projections. This process helps buyers and investors make informed and confident decisions considering the expert-verified financial data.

Importance of Financial Due Diligence

• It uncovers financial misstatements or irregularities.
• Validates valuation models and deal pricing
• Assesses debt obligations and cash flow sustainability
• It helps in post-acquisition integration planning.

Legal v/s Financial Due Diligence

• Focus Area: Legal Due Diligence focuses on identifying legal risks like contract breaches, regulatory violations and ownership disputes. It ensures that the company is operating within the legal framework. The financial due diligence examines the financial health of the business, including profitability, tax compliance, revenue streams and financial reporting accuracy.
• Key Professionals: The legal due diligence is conducted by corporate lawyers, legal advisors or law firms, specializing in M&A and corporate compliance. The financial due diligence is handled by experienced Chartered Accountants, financial consultants or forensic auditors with expertise in financial analysis and tax matters.
• Key documents: Legal Due Diligence involves reviewing contracts, agreements, licenses, permits, ongoing potential lawsuits and compliance records with statutory norms. The financial due diligence involves analysis of balance sheets, P&L statements, tax returns, GST filings, cash flow statements, credit facility documents and bank account details.
• Focus: Legal Due Diligence complies with laws like The Companies Act, 2013, Labour Laws, SEBI regulations, FEMA and Environmental laws and sector-specific licenses. The financial due diligence adheres to the Income Act, Goods and Service Tax, Indian Accounting Standards and RBI guidelines.
• Goal: The main aim of legal due diligence experts is to ensure legal ownership of assets, compliance with applicable laws, awareness of ongoing litigations or legal risks and safe transfer of titles and responsibilities. Financial due diligence aims to confirm the accuracy of the financial data, assess the business’s valuation and profitability, identify tax liabilities or accounting irregularities and justify or renegotiate deal pricing.
• Identifying Risks: The legal due diligence services uncover contractual breaches, hidden clauses, intellectual property ownership issues, pending litigations that may impact future operations and non-compliance with legal norms. The Financial Due Diligence experts detect misstated financial statements, hidden or unreported liabilities, tax defaults, inaccurate GST returns and poor working capital or unsustainable cash flows.

How Professional Service Provider help in accurate due diligence?

• The experienced service providers bring in a comprehensive knowledge of sector-specific regulations, accounting practices and legal frameworks ensuring nothing is missed.
• They verify compliance with laws and statutory obligations relevant in India.
• The experts review contracts, financial statements, tax filings, licenses and legal records to validate their authenticity and consistency.
• Skilled professionals locate risks like ongoing litigation, hidden liabilities, tax defaults or misreported revenue early in the process.
• The due diligence experts help assess the true value of assets, liabilities and equity to prevent overpayment or undervaluation in deals.
• The service providers tailor their due diligence process in sync with your specific business type, transaction size and sector risks.
• They also help in planning smooth transactions, compliance continuity and risk mitigation post-acquisition or investment.

Legal and Financial due diligence are important to protect your investment, helping you make informed decisions.

FAQs

1. Why is due diligence important before an acquisition or investment?
Due Diligence helps identify legal, financial and operational risks in business. It ensures informed decision-making, preventing future liabilities and supporting accurate valuation and negotiation. Anbac Advisors offers expert and tailored due diligence services helping them make informed decisions.

2. How long does the due diligence process take?
The timeline varies based on the business size and the complexities involved. It normally takes two to six weeks for the standards due diligence process to finalize.

3. How to choose a good due diligence expert in India?
Choose a due diligence expert with proven industry experience, strong legal, track record and financial credentials. Anbac Advisors checks all the boxes of a good due diligence expert.