What is Due Diligence

What is Due Diligence

A Bread and Butter Job For Us

You may or may not have heard the word ‘Due Diligence’ before if you are not connected to the world of private investigation. But to us, these two words are ‘loaded words’ and is responsible for a large number of private and corporate investigation cases that arrive on our desk on a weekly basis. The term ‘due diligence‘ refers to the care and importance that one party must take before entering into an agreement with another party. The inquiry that follows will serve to confirm all facts about the agreement in consideration. In the larger context of corporate and industrial houses, due diligence is the ways and means to examine the financial underpinnings of  a corporate entity with regards to an upcoming investment, merger or acquisition with the main aim being a thorough understanding of the inherent risks associated with a deal.

In a deal where there is a sell / purchase situation, both parties will want to verify the background of the other party to ensure that he / she is acting in good faith. The seller wants to be assured that the buyer has the financial ability to meet the sales price and on the other hand, the buyer wants to be sure that the seller’s property is worth the price commanded. Due Diligence is basically a way of preventing unnecessary harm or loss to either party.

due diligence detectives mumbaiIn many ways, due diligence is similar to pre employment verification. A job applicant who wishes to be employed by a certain company provides information about his / her qualifications and experience. The employer verifies the information provided by the employee and then makes a decision whether to hire him / her or not. Similarly, in due diligence, Party A wants to connect with Party B and provides information about it’s qualifications. Party B verifies the qualifications and takes a call.

Just like pre employment verification, the other party is asked to fill out forms, provide copies of relevant documents and in many cases be required to give their consent to be being investigated. In due diligence, many documents are requested. Below are a list of mandatory compliance required by the buyer for any deal and should you be in the same situation, the below pointers may come handy.

1. A Management hierarchy chart and biographical information of the chief executive officers of the company.

2. Copies of prior or pending lawsuits.

3. Summaries of disputes with suppliers, competitors or customers.

4. Any correspondence regarding threatened or pending litigation, assessments or claims.

5. Decrees, orders or judgement of courts or governmental agencies.

6. Reports made to regulatory groups such as SEBI etc.

7. Summaries of labour disputes.

8. Correspondence concerning pending or threatened labour stoppage.

9. Consulting agreements, loan agreements and documents related to outside transactions  involving corporate officers, directors, key employees and related parties.

10. Compensation schedules of corporate officers, directors and key employees showing salaries, bonuses and non-cash compensation such as the use of cars, entitled leave and vacations, entertainment and property.

11. Summary of management incentive or bonus plans.

12. Confidentiality agreements.

A buyer who has doubts about the veracity of any of the above documents decides to then hire private investigators like us to verify the facts and uncover any other hidden truths if there are any.

Past Conduct Indicates Future Conduct

The investigative techniques used in a due diligence inquiry are not very different from those used when checking records, cross checking references and interviewing knowledgeable people. We honestly believe that a person’s reputation and integrity and the way that he / she will conduct himself / herself in the future can be gauged from his / her behaviour and records of the past. In short, past conduct is a very good indicator of future conduct. A job applicant with a high IQ and a very good aptitude score may look good on paper until a background investigation done by us throws up a criminal record! Similarly, a prospective business partner with a great personality may seem to be the perfect partner until a background investigation reveals a record of suspicious book keeping. Remember you never know what lurks beneath!

Author Bio

Amit Sen is the founding partner of Alliance One – who are among the best detective agencies in Mumbai specializing in providing thorough pre matrimonial detectives services among other private and corporate investigation services. Amit is also a trained pilot and an aviator and likes to remain grounded on the days when he is not flying high.

Article edited and co-written by Atin Dasgupta who is the co-founder and marketing head of Alliance One. Read more about Atin here.

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