Due diligence is a critical aspect of any investment and is particularly important for private equity (PE) deals. PE companies invest in privately-owned businesses, which aren’t required to file public reports or regulatory oversight. This makes it difficult for investors have a clear view of the company’s operations.
A thorough due diligence process can ensure that a business is assessed correctly, aid in identifying opportunities to earn profits, and minimize risk of improprieties or disputes that could affect the valuation at the time of exit. Insufficient diligence could also lead to significant legal and regulatory implications, which can damage the image of a company and hamper its ability to raise capital in the near future.
When it comes to performing due diligence as part of a private equity investment, legal due diligence is vital to ensure that all risks are considered and any issues that might arise are addressed prior to. This includes evaluating a company’s legal framework and compliance framework as well as reviewing the company’s corporate and ownership structure. Additionally, it’s important to understand a company’s human capital by reviewing the org chart and roles/responsibilities of management. Additionally, it’s essential to confirm the physical assets by looking over a company’s documents for real estate and PP&E holdings.
Despite the fact that deal volumes are down and turnaround times have grown longer, it’s vital for PE firms to focus on rigorous due diligence to reduce the risk and maximize their chances of success in today’s highly competitive. Download our free guide to find out how to streamline and optimize your due diligence.