Introduction
Due diligence is that the process by which legal, monetary, confidential, and other important information is studied, traded, and evaluated by the parties, and it’s done before finalizing the deal. It is also an investigation and risk calculation of a future business transaction. It’s a careful assessment of a business or persons or the performance of an act with certain care to make sure that the information is precise and proper and to get the information that will affect the results of the deal. This process is employed to analyze the pros and cons of the proposed merger and acquisition. Sometimes this process helps to get the hidden facts associated with the proposed mergers or in other words we will also say that it sometimes also helps discover the facts which are being hidden by either of the parties intentionally. Due diligence is additionally important to permit the investigating party to understand everything that it needs to know. In today’s world, it’s quite common that people tend to misrepresent the facts about their business and try to fraud another person for his or her own benefit therefore the process of due diligence helps to make sure the investigating party gets all the relevant facts about the targeted party.

Various aspects of Due Diligence
The various aspects for Due Diligence are as follow:
1. Financial Aspect – Under this aspect, the most focus remains on the accounts book of the companies, their financial history, or any pending debt of the parties of the proposed merger.

2. Legal Aspect – Under this aspect, the most focus remains on the contracts of the corporate, the agreements of which the corporate is a component of or any pending litigation against any of the parties of the proposed merger.

3. Commercial – Under this aspect, the most focus remains on the market strategy followed by the parties, market dynamics, Goodwill of the corporate which eventually helps the parties to the merger to make a decision the exposure of the proposed merger in the future.

4. Human resource – Under this aspect, the most focus remains on the utilization policy, which also checks the work environment, the dedication of the workers towards their employers. They also make sure is there any lawsuits filed by the workers against their employer and also the working environment is additionally vital because it directly affects the performance of the workers.

5. Tax – Under this aspect the most focus remains on the very fact that the parties have paid all their taxes on time, which eventually helps to make sure that there’s not any corruption happening within the company by evading the taxes.

Case Laws
1. Google and Nest
Google acquired nest labs in 2014 to enter into the market of smart homes. While google worked efficiently on the software but couldn’t cope up with the hardware and merchandise innovation. This led to internal fighting and politics within the Nest which affected the merchandise innovation of the corporate and ultimately both the founders had to later quit the corporate.

2. HP and Autonomy
In 2011, HP acquired Autonomy, a European data analytics company. But, later it had been acknowledged that Autonomy had cooked their books which resulted in the increase of their prices during acquisition. HP couldn’t gain anything from the acquisition and ultimately had to write down down the acquisition as a $9 Billion Loss.

Conclusion

Due Diligence is a very important part of the merger and acquisitions process. An M&A transaction typically requires a buyer and its counsel, advisors, and accountants to undertake a big amount of due diligence.

By

Vaidik Sharma

C-41

B.A.LLB 5th Year

Bharati Vidyapeeth, New Law College, Pune