Due Diligence is one of the common terms used in financial parlance. Its requirement is increasing as there is growth in industries; businesses are entering into uncharted territories, and fraudulent acts are taking place. Businesses highly benefit from Due Diligence services in UAE as it summarizes all the significant aspects concerning the matter under Diligence.
What is Due Diligence?
It is a review or investigation conducted by someone to satisfy himself as to the genuineness of the matter and parties under consideration before entering into a legally binding contract or agreement or transaction. It saves one from unnecessary issues arising later. A little homework at the initial stage saves one from a significant misfortune. It gives the required confidence and understanding about the parties to a transaction and the various aspects of the transaction.
Due Diligence – know about its different types
There are various Due diligence types, and these are exercised based upon the situation, institution, and requirements. These types help provide businesses with the knowledge and confidence to learn about the subject matter requiring Diligence.
There are Due diligence services in Dubai that can help you know about the true value of a business transaction and save companies from potential losses. It provides a way to empower your business-related decisions.
The major Due diligence processes are associated with business aspects such as Mergers and acquisitions (M&A), financial, customer, vendor, and commercial Due diligence services. These business aspects are interlinked and deliver the business with information on all the areas. The major advantage is information collected from one business aspect can be useful for another. Let’s have a look at different types Due Diligence Services in UAE:
M&A Due Diligence
There are two possibilities when merger and acquisition Due diligence is conducted:
- When two companies wish to merge into a single entity
- When one company wishes to acquire another
It helps businesses to know whether the deal will be beneficial for them or not. It helps one understand all the essential information about the target, including its financials, customers, suppliers, technology, intellectual property, and liabilities. Based on it, a business will adjust the expectation it had from the merger or acquisition process. It lets the buyer company know about the potential risks associated with the target business. It will also help the company to define the clear structure after the integration of the targeted acquisition.
Similarly, the seller also conducts M&A Due Diligence of the buyer to understand his profile, financials, and capabilities to execute the deal.
Customer Due Diligence
Customer Due Diligence is one of the most sensitive and highly important services. In many countries, companies are bound by the law to conduct it. This service is necessary to avoid money laundering and terrorist financing. In case, if the companies do not follow all the measures of it, they may be declared non-compliant, and penalties could be charged.
The level of diligence differs as per the nature of a business, and the business relationship the company is going to have with the client. Companies apply a risk-based approach to it and carry out enhanced Due Diligence for customers in the high-risk category.
Vendor Due Diligence
Vendor Due Diligence is aimed at gaining a reasonable confidence that the vendor is financially capable, and its corporate governance processes are sound. Businesses perform vendor Due Diligence before entering into an agreement or contract with them. This agreement could be for the supply of raw materials, information technology, or the provision of services. It helps in minimizing compliance risk and reputation risk.
It’s is an ongoing process. Companies need to analyze their relationship with the vendors at least yearly to know about the structural changes that might have happened at the vendor’s end. It helps one in structuring a better deal and saving oneself from unwarranted risks.
Third-Party Due Diligence
The third-party Due diligence service is introduced due to the development of strict anti-bribery laws. The company needs to provide proof that they have taken enough and efficient anti-bribery measures.
It is conducted when a company plans to outsource its work to external companies. The Due diligence process helps to identify the risks involved and the chances of corruption. It is done by collecting essential data such as company structure, reputation, operational info, and ownership.
It helps in ensuring that the third-parties employ ethical business practices, have proper policies, and procedures in place to protect confidential information, mitigate risks, and have the proper infrastructure to provide a sustained service.
Financial Due Diligence
The financial Due diligence process primarily focuses on identifying the actual financial picture of the company. In this process, the financial data is scrutinized, and the areas where potential risks lie are identified.
It involves a thorough check on fixed costs, variable costs, profit margins, internal control framework, and major customer accounts.
Based on the financial diligence report, the buyer gets the knowledge about the company’s financial history and current performance. It even helps him to forecast future growth and investment.
Commercial Due Diligence
The commercial Due Diligence deals with the broader aspect in comparison to the financial one.. Through this process, a private equity firm estimates the commercial attractiveness of a company.
In addition to the financial health of the company, it also focuses on the internal as well as external environment of the targeted company.
Through the Commercial Diligence report, one can gauge the company’s performance and its chances to meet the target. It also presents the potential problems which the buyer may face as a result of the acquisition.
Legal Due Diligence
Legal Due Diligence is nothing but an investigation of the legal aspects of a transaction. Accordingly, the legal structure of the entity, contracts, and agreements, assets and liabilities, contingent liabilities, and pending legal proceedings are explored.
It ensures that all the legal risks associated with the transaction are identified and suitably classified.
Operational Due Diligence
Operational Due Diligence aims to understand the operational aspects of a company. An in-depth analysis of its day-to-day functioning, business processes, and procedures and internal controls is made to understand its operational efficiencies.
It helps in evaluating whether the internal structure of the company is flexible enough to fit into the buyer’s business. It highlights process improvement opportunities and performance gaps.
Significance and advantages
Due Diligence is a vital element of every business deal, whether it is between two different businesses or between a business and a client.
It helps in ascertaining the true value of the target company. It saves the company from making a wrong investment and facing losses. When it is conducted, it will look at the operational and financial details of the company providing the idea to the buyer regarding the growth and financial stability of the company.
There are several compliance-related requirements associated with it. It is also essential to remain compliant with any anti-bribery laws, anti-money laundering regulations, and counter-terrorist funding.
For that reason, companies even conduct KYC check, making sure that the customer is reliable and has provided genuine information. This also assures that an entity doesn’t get exploited by getting used for criminal activities.
It helps in ascertaining the viability of a transaction, knowing the skills and capabilities of the employees of the target company, assessing the technological framework of the company, and creating synergy between the companies for achieving the organizational goal.
Due Diligence is itself a risk management tool for companies entering into a business transaction. It helps to make an informed decision and avoid surprises at a later stage.
Due Diligence Services in Dubai : FAQs
The time required to conduct the complete Due Diligence varies according to the scope of work and complexity of the business. Generally, customer Due diligence takes lesser time than the one conducted for a whole company.
It starts only after both the parties (buyer and seller) sign a letter of intent (LOI), and it ends when both the parties sign a definitive purchase agreement.
The quality of earnings report provides the complete picture of the company’s revenue and expenses according to which one can verify if investing in the targeted company is worthy or not.
Due Diligence Service in UAE
N R Doshi & Partners provides Due Diligence Service in UAE to safeguard your interests and helps you comply with legal requirements. We use our proprietary ethical and non-intrusive methods with the highest standards of integrity and accountability in all related Due Diligence assignments.
Identify key issues early and protect your business interests with our top-notch Due Diligence Services in UAE. Our Due Diligence Report helps you make an informed business decision and saves you time and costs. It clearly highlights the outcome supported by our findings and recommendations. Contact us now to get in touch with our consultants and answer all the questions related to our Due Diligence Services you might have.