In the context of the economic crisis, it becomes obvious for market participants to manage the risks of their activities which is achieved within the framework of the due diligence. So, what are the key procedure aspects to unlock value from investment raising?
Due diligence as an instrument of the company’s investment attractiveness
For investment market participants, one of the most important tasks is to manage the risks of their investment activities. If an enterprise needs to attract investments, then the management should formulate a clear program of measures to increase investment attractiveness. The conditions of a highly competitive environment for the operation of the system of attracting direct investment require the objects of attraction to adhere to the principle of transparency in conducting business. An investor who intends to make a direct investment in the company wants to have a complete, objective, and reliable information about the state of affairs in the target company. The collection of such information and its further analysis is the basis of the due diligence procedure.
The economic content of the risk assessment method covers all aspects of a business, as well as an assessment of its financial position and market position. Due diligence means a system or a set of operational and analytical measures that are aimed at a multifaceted check of the commercial attractiveness of an object (meaning an investment project, procedure, transaction, etc.). Their goal is to avoid or maximize the reduction of existing business risks (financial, tax, marketing, etc.)
Key aspects of successful due diligence for investment raising
- Selection of a professional team of consultants
Usually, for the due diligence procedure, the buyer involves consultants and experts. At a minimum, the due diligence team should include assessment, legal, and financial/accounting personnel. It may also include economists, engineers, security specialists.
- Statement of technical specifications
A good due diligence procedure should begin with the preparation of a comprehensive detailed terms of reference for the procedure. This is necessary because the investor sometimes has questions related exclusively to the conduct of business, and only the investor knows exactly what he expects from the acquired company. The terms of reference should highlight the most important areas of the proposed transaction.
- Creation of Virtual Data Room
To facilitate work and save time, it is very important to have all the necessary documents in one place, in a special Virtual-data-room.org. This digital platform enables the search for documents, makes it possible to ask the staff questions and conduct negotiations, and also allows the seller to somehow control the process of working with documents in real-time collaboration.
- Necessary and sufficient documentation
No less important in the due diligence procedure is the verification of intercompany transactions: any agreements entered into by the company (pledges, loans, contracts, leases, and other civil agreements), including any letters of intent, money transfers, prospective public offering of shares (IPO). It is important for the consultant to determine what information is necessary for verification, and from what level the analyzed data can be neglected.
- Preparing of report
After studying and analyzing all the information, conducting the interview, a report is drawn up on the due diligence procedure. For the convenience of perceiving information, the most essential information is summarized in a separate presentation.