Due diligence process and sources of information.
Due diligence starts, whenever a private Equity Firm starts evaluating and investment Target or list of targets and will continue to the end of the acquisition process.
The initial phase of exploratory due diligence involves finding out about a company from publicly available sources such as websites news articles as well as knowledge sourced from advisor networks and Industry Specialists or events.
Once a target has been identified as high potential a process normally begins.
This may be an auction process run by advisors or a proprietary one between the private Equity Firm and vendor only.
At this point preliminary due diligence kicks off.
Involving signing a non-disclosure agreement known as an NDA or confidentiality agreement this binds both parties to keep information about the Target and the deal process confidential.
Once an NDA is signed the selling party will provide information in the form of a confidential information memorandum cim.
Prepared professionally by advisors and containing information on the investment opportunity including the company the industry strategy and historical and projected financials.
This will also normally include a process overview with timeline and steps to closing a management presentation which provides more about the company's team and the business expanding on what is in the cim.
This is often in person and is the first opportunity the private Equity deal team to ask questions and hear about operations and strategy first hand.
Other vendor due diligence prepared by advisers such as consultants or accountant.
To help the buyers understand the investment properly.
These are less common for smaller proprietary transactions, but very common for large ones. These documents are often accompanied by meetings to ask the advisors questions.
The information from the preliminary due diligence is organized into a preliminary investment memorandum and submitted to the private Equity firms investment committee a decision is then made to continue or not.
If approved further resources and budgets are granted to continue into the formal due diligence phase during which a thorough review of the Target business will allow the private Equity Firm to arrive at a decision to submit a formal legally binding offer for the company.
During the formal due diligence stage.
Deal teams will manage the various advisors such as consultants Auditors and lawyers to provide as many answers to questions as possible.
Reports will be put together by all advisors.
Data room access will be given these were previously rooms with company archives today. They are almost always virtual.
The buyer and their advisors will be given access this comprehensive Data Bank of raw information will be extensive including operational legal administrative Technical and financial documents.
Site visits and further management meetings will also likely take place.
These allow the investor to see and touch the business in person.
After the formal due diligence is complete a final investment memorandum can be completed and sent to the private Equity firms investment committee.
If a green light is given for a binding offer then confirmatory due diligence is requested. This will vary based on whatever outstanding questions remain from previous due diligence.
Highly sensitive information may be revealed to the preferred bidder at this stage.
Relevant transaction documents are drafted in this phase and any technical due diligence needed for these may be sought for deal pricing and Provisions.
