Due Diligence for Mergers and Acquisitions

When a company is considering a financial transaction involving another entity—such as an acquisition, purchase, partial investment, or participation in projects and business alliances—it is crucial to thoroughly verify all assumptions and data related to the transaction and the entity involved. This process is known as due diligence. It ensures an appropriate level of confidence and comfort for both entities by analyzing and verifying financial, commercial, operational, and strategic aspects.

Key procedures in due diligence include:

1. Company Activity and Legal Structure: Understanding the company’s activities and legal status by reviewing its historical development, analyzing operating revenues, and examining its legal structure. This includes assessing the evolution of the company’s capital. 2. Cash Flow Analysis: Evaluating the company’s cash flows and analyzing various types, including operational, investment, and financing cash flows. 3. Asset Review: Inspecting the company’s assets, particularly long-term assets, receivables, key clients, and liquid assets (including cash in banks). It is also important to review the company’s liabilities, both long-term and short-term. 4. Tax and Legal Position: Reviewing the company’s tax and legal status to determine any tax liabilities or legal issues that might affect its operational status or future performance. 5. Valuation: Determining the net worth of shareholders and evaluating the value of the company’s shares or stakes based on all the collected information and data.