What is due diligence - and why is it so important?

Due diligence, often referred to as a DD or company review, is a due diligence process in which one or more potential buyers of a property gain insight into the actual conditions of the property in question. The purpose of a DD is to uncover risks, hidden deficiencies and areas of opportunity associated with the property so that the buyer can make a well-informed investment decision.

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When is a DD carried out?

A due diligence is typically carried out in connection with the sale of an asset or a company, capital increases, mergers, demergers, the establishment of joint ventures or the restructuring of companies. In most cases, the buyer carries out the DD, but the seller can also carry out a so-called Vendors Due Diligence(VDD) prior to a sale. The purpose of a VDD is to map all relevant aspects of the asset, thereby preparing the object for sale. If the seller initiates a VDD, it gives the party the opportunity to correct any errors and deficiencies before the sale, and it will also accelerate the ordinary DD process by ensuring that all documentation is updated and prepared in advance.

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How is a company review conducted?

In most cases, the buyer side prepares arequest list asking for information and documentation related to the object of sale and other matters relevant to the transaction. The seller then responds to the request list by uploading and making documentation available in a data room. The list of questions that is prepared is often based on a fixed structure, and is then adapted to the transaction in question. Occasionally, there will be questions that the seller wants to answer with text answers rather than uploading one or more files. ENVE has therefore developed functionality that allows the seller to respond to requests directly in the data room, and it is also possible to mark questions as Not relevant where appropriate. This functionality eliminates the need to communicate by email and phone, thus gathering all relevant information in one place.

A company review is typically divided into financial, legal and technical due diligence, and the buyer often involves different advisors to review the various dimensions. Which advisors are involved depends on the object being sold, and in a real estate transaction, for example, financial and strategic advisors, lawyers, technicians and business brokers are involved. In addition to the above-mentioned dimensions, there has recently been an increasing focus on environmental, social and business ethics(ESG) in SD processes. In all likelihood, this focus will increase in the years to come - especially in M&A transactions.

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How to make your next due diligence process even smoother

To increase the degree of efficiency in a DD, the seller must have its affairs in order before the company review begins. Both parties must also allocate sufficient resources in the form of time and human capital to obtain and review information about the actual conditions of the object within a reasonable timeframe. The use of specially adapted tools and aids also plays a key role in streamlining transactions. ENVE has therefore developed unique functionality to handle the various tasks involved in a company review; and we intend to continue to do so. In the future, new functionality will therefore be launched on an ongoing basis that will help to further simplify the workday of actors who assist in due diligence processes.

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