Significance of due diligence as a procedure report

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SIGNIFICANCE OF DUE DILIGENCE AS A PROCEDURE
RUCHITA SANGARE
HPGD/AP19/1139
WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT AND RESEARCH.
YEAR OF SUBMISSION: - MARCH 2021.

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ACKNOWLEDGEMENT
It would be a great gratification to present this report on “SIGNIFICANCE OF DUE DILIGENCE
AS A PROCEDURE”. I would like to thank Welingkar Institute of Management for providing me
the opportunity to present this project.
No serious and lasting achievement or success one ever achieves without friendly guidance and
cooperation of so many people involved in work. I place my thanks to all those who spared their
time and made it convenient for me to complete the study. I deeply acknowledge their concern for
my study. Last but not the least, I also wish to express my gratitude for any person, my memory
has failed to recall, who rendered his/her/their support and services.
Lastly, I thank almighty, my parents, friends for their constant encouragement without which this
project would not be possible.
RUCHITA SANGARE

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UNDERTAKING BY CANDIDATE
I declare that project entitled “Significance of Due Diligence as a Procedure” is my own work
conducted as part of my syllabus.
I further declare that project work presented has been prepared personally by me and it is not
sourced from any outside agency. I understand that, any such malpractice will have very serious
consequence and my admission to the program will be cancelled without any refund of fees.
I am also aware that, I may face legal action, if I follow such malpractice.
RUCHITA SANGARE

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TABLE OF CONTENTS
➢ Title 1
➢ Acknowledgement 2
➢ Undertaking of Candidate 3
1. INTRODUCTION
• Objective of Due Diligence Report 6
• Importance of Due Diligence 6
• Characteristics of Due Diligence 7
• Areas of focus in a Due Diligence Report 8
• Transactions covered for Due Diligence 8-9
• Steps in Due Diligence 9-12
• Types of Due Diligence 13-23
• Other key points in Due Diligence 23-28
2. BACKGROUND
• Role of Due Diligence 29-30
• Is there a difference between Due Care and Due Diligence? 30
• Hewlett-Packard-Compaq Case study 31-36
• The challenges of Due Diligence 36
3. METHODOLOGY
• Checklist for Business Due Diligence 37
• Checklist for Legal Due Diligence 38
• Checklist for Financial Due Diligence 39-40
• Checklist for Tax Due Diligence 41
• Other checklist for Merger and Acquisition 42-58
4. CONCLUSIONS 59
5. RECOMMENDATIONS 60
6. LIMITATIONS 61
7. BIBLIOGRAPHY 62

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INTRODUCTION
Due Diligence is a procedure where research and analysis is undertaken before an investment,
merger, acquisition, business partnership or bank loan, for the purpose of identifying value of the
subject of due diligence or whether there are any major issued involved. It act as a bridge that must
be crossed in nearly all transactions and without it, the risk of problems or failure along the journey
for the buyer are increased in case of M&A. It aims to enhance understanding of key information
underpinning a corporate transaction enhancing the ability to make informed investment decisions.
Such findings are then summarized in a report which is known as the due diligence report.
In layman’s language, Due Diligence means the reasonable verifications and precautions taken to
identify or prevent foreseeable risks.
It is process of analyzing various aspects to estimate an entities commercial potential, assessing
the financial viability of the entity in terms of its terms of its assets and liabilities at a
comprehensive level and examining the operations and verifying the material facts related to the
entry in reference to a proposed transaction.
In business, due diligence is the process of making sure every aspect of a transaction is in order
before it moves forward. When a company considers issuing an IPO, potential investors perform
due diligence on that company to make sure it’s worth the investment. The term is sometimes used
in the hiring process to verify that a candidate has the experience they claim.
In the context of an M&A transaction, Due Diligence provides the buyer with reliable and complete
background information on proposed deal and also helps in uncovering potential liabilities and
discrepancies and thus enables the buyer to take an informed decision. There are various forms of
Due Diligence depending upon the area/scope of coverage like Financial Due Diligence, Legal
Due Diligence, Commercial Due Diligence and Tax Due Diligence. Other diligences may be
performed in areas such as IT and human resources. It should be noted that there are no clear
boundaries between these categories.
Due diligence in M&A can include not only looking at obvious details like financial stability, sales,
real estate, and intellectual property, but also pending litigation, labor relations, environmental
problems, and relationships with third parties.

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I OBJECTIVE OF DUE DILIGENCE REPORT
The objective of due diligence is to identify problems within the business, particularly those
matters which may give rise to unexpected liabilities in the future. The main objectives of
conducting Due Diligence are
• Collect material information from the target company.
• To take a collect decision about an investment.
• Conducting the SWOT analysis to identify the strength and to uncover threats and
weakness.
• Improving the bargaining position depending on SWOT analysis.
• To identify the areas where representations and warranties are required.
• To attain a desired comfort level in a transaction.
• Complete and accurate disclosure.
• Bridge the gap between the existing and expected.
II IMPORTANCE OF DUE DILIGENCE
Finding skeletons in the closet before the deal is better than finding them later” is a relatable
aspect when it comes to due diligence. The information collected during this process is crucial
for decision making and hence needs to be reported. The Due Diligence report helps one
understand how the company plans to generate additional earnings (monetary as well as non-
monetary). It serves as a ready reckoner for understanding the state of affairs at the time of
purchase/sale, etc. The ultimate purpose is to get a clear picture of how the business will
perform in the future.
• Analysis of who runs the company.
• Examining how large and volatile is the company and market. A contrastive analysis of
both of them is needed.
• Research and compare the boundaries of competitors for a better comprehension of the
target company.
• This helps in interpreting the debt-to-equity ratio.
• To examine if there are any recent trends in the figures which may be rising, falling or
stable?
• It enables to learn industry-wide and Company-specific dangers, and all the checking if
there are any on-going risks and trying to predict any futuristic unforeseeable threats in the
future.
• How long has the Company been dealing? For a short- term or long-term? Has there been
a steady stock price?
• To maximize the profit for the future.

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III CHARATERSTICS OF DUE DILIGENCE
There are a number of unique characteristics applicable to due diligence, which are not
typically experienced by business owners during other business transactions or projects.
• Generally time driven - Once the Heads of Agreement have been agreed upon, the buyer
usually has a short period of exclusivity to fully investigate your business, meaning that
what follows can be an intense and stressful period responding to queries and providing
the relevant data/information.
• Significant involvement of finance team and senior management - the due diligence
process will add significant additional workload onto both finance staff and the senior
management of the business, hence the risk of ‘taking your eye off the day the day
activities.
• Purpose of the process is risk management - as the party looking to exit (the seller) it is
important for you to understand the purpose of the process i.e. it is predominantly for the
buyer to investigate all of the potential risks in your business PLUS be able to validate the
opportunities.
• Largely out of YOUR control - as per the above, the process is largely outside of your
control, however there are elements of the process that you can manage proactively, such
as ensuring that the opportunities for the buyer are constantly highlighted, while being
supported by the financial and other data being provided along the way.
• Inadequate due diligence = RISK - there is risk for both parties where the due diligence
process is not managed inadequately i.e. for the buyer that a key risk or a potential
opportunity is not clearly investigated ahead of the completion of the deal, while for the
seller poor management of the process results in a lack of credibility, errors or delays i.e.
affecting deal completion or price.

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IV AREAS OF FOCUS IN A DUE DILIGENCE REPORT
• Viability - Accessing the viability of the target company can be done through a thorough
study of the company's business and financial plans.
• Monetary Aspect - Key financial data and a ratio analysis would be necessary to
understand the complete picture.
• Environment - No business operates in isolation. Hence, it is necessary to look into the
macro environment and its impact on the target company.
• Personnel - A very important factor to consider is the capability and credibility of the
people who are operating the company.
• Existing & Potential Liabilities - Any kind of pending litigations and regulatory issues
should be taken into account.
• Technology - A very important factor to consider is the assessment of the technology
available with the company. Such an assessment is necessary as it helps decide future
actions.
• Effect of synergy - Creation of synergy between the target company and the existing
company serves as a tool for decision making.
V TRANSACTIONS COVERED FOR DUE DILIGENCE
• Mergers and Acquisitions - Due diligence is done from the viewpoint of the seller as well
as the buyer. While the buyer looks into the financials, litigation, patents and an entire
range of relevant information, the seller focuses on the background of the buyer, the
financial capabilities to complete the transaction and the ability to fulfil commitments
taken.
• Partnership - Due diligence is done for strategic alliances, strategic partnerships, business
coalitions and such other partnerships.
• Joint Venture and Collaborations - When one company joins hands with another the
reputation of the company is a matter of concern. Understanding the other company’s stand
and measuring the adequacy of resources at their end assumes importance.

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• Public Offer - Aspects included during making a public offer are decisions on public
issues, disclosures in a prospectus, post issue compliance and such other matters. These
would usually require due diligence.
VI STEPS IN DUE DILIGENCE
The essence of any due diligence exercise is its ability to reduce uncertainties, confirm
assumptions, define scope and prioritize issues. The entire exercise combines an
understanding of the organization, the operations of the company, technologies, logistics,
corporate strategy, finance, and summary of the complex issues into concise, easily
understandable terms.
The process of due diligence comprises the following phases –
▪ Planning phase.
▪ Data collection phase.
▪ Data analysis phase.
▪ Report finalization phase.
▪ Due diligence reporting.
• Planning Phase - This is a stage where all the initial planning relating to the conduct of
due diligence is done. It includes the processes described in this section.
i) Defining Scope - The entity desirous of undertaking due diligence constitutes a
committee or team for carrying out the entire exercise. The due diligence team discuss
the proposed transaction and defines the objectives intended to be attained through the
exercise. Once the objectives have been established, the availability of resources is
studied and determined and the areas on which the team has to focus are defined.
ii) Deciding Focus Area - After deciding the scope of due diligence, the next step is to
decide on the focus area. The focus areas generally include the following –
(a) Sustainability of business - The sustainability of the business can be understood
by considering the target company’s business plan, vision, strategic alliances,
synergies, new products, new customers, customer base, etc.
(b) Financials - Here key financial variables are reviewed. They normally include
assets, liabilities, cash flow, inventory turnover, revenues, accounting procedures
and policies.

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(c) Competition - The focus here is on understanding the competition in the market
for it influences the business plans and strategy to a great extent.
(d) Management team and organizational culture - Understanding the prevailing
culture, outlook, and capability of the management team is of prime importance
while conducting due diligence. These variables provide direction and drive the
activities of the organization.
(e) Potential liabilities - It is important to identify the potential risks and liabilities
that an organization would face if it enters the industry or merges with another
entity. The issues to be considered would include IP rights, pending regulatory
issues, liens, lawsuits, etc.
(f) Technology - Technology is a very important differentiator in today’s business
world. A company needs to assess the advantages possessed by the target in this
area. Technological advantage forms the basis for maintaining a competitive edge
over other players in the industry.
(g) Existing market and potential - Information regarding sales, distribution,
marketing channels, and promotional methods is crucial for developing the
business plan. Appropriate information on these key variables must be collected
and kept ready for reference.
(h) Business-to-business fit - It is necessary that the two merging entities are the right
fit for each other. Instead of merging and then realizing that the merger is destroying
value, it makes sense to determine in the very beginning whether the two businesses
fit well in the scheme of things planned. If there is a good fit between the two
businesses, it would create corporate synergy. The synergy might arise due to
complementary strategy, personnel, financial situation, etc.
iii) Finalizing Team Structure - The entire exercise of due diligence requires varied skills
and expertise. While forming the due diligence team, one should ensure that the
members possess specific skills and background so that the due diligence process is
successfully completed. The team member should be capable of collecting and
analyzing information about the target company, the transactions, industry, and due
diligence objectives. The members should know the information to be collected, the
number of site visits necessary to collect relevant information, the analysis to be
performed and the type of report to be delivered at the end of due diligence process.
iv) Defining Responsibilities - Every due diligence efforts requires integration of efforts
and communication with multiple parties. Planning should be done in such a manner
that responsibilities and expected outputs are clearly defined, and the team can work
collectively towards a common goal.

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v) Defining Time Schedules - Before starting the due diligence process, it is better to
define the time schedule for each step. Scheduling the time of each key step helps in
achieving results in the desired timeframe and helps the parties attain the desired goal
without loss of time and energy.
vi) Communicating Information Requirements - The success of any due diligence
program depends on the team’s ability to collect complete, accurate, and timely
information. Each member needs to collect information as early and specifically as
possible so that delays can be avoided. This can be done by informing team members
of the expectations from them and timelines.
vii)Finalizing Templates and Tools Required - Based on scope, needs, and objective,
the due diligence team should decide on tools to be used such as interest database
search, regulatory database search, questionnaires, worksheets, and other
communication methods such as interviews.
• Date Collection Phase - This stage involves collecting existing business process data. The
approach used for data collection depends on a number of factors including the desired
precision, the nature of questions that need to be answered, and the availability of time,
money and access to information providers. The sources of information that can be tapped
include the Internet, regulatory organizations and their databases, competitors, vendors,
customers, industry associations, etc.
The research can be qualitative or quantitative. While qualitative research involves
conducting in-depth interviews and asking two or three relevant questions from
information providers, quantitative research is done via surveys that are conducted among
a sample of customers. The information is then extrapolated to the entire population.
The data collection phase usually starts with a meeting with the company management.
Here, the investors meet with the target company management to clarify the due diligence
process, the issues that should be addressed, and the meetings and site visits that need to
take place. Next, the due diligence team makes an initial request for information needed,
such as business plans, forecast, financial statements, sales figures, market data, customer
lists, technology specifications, and supplier contacts. After the initial meeting, the team
initiates the rest of the process. This includes interviews and questionnaires with the
suppliers, customers, employees, etc., to know their perceptions of the company’s products
then collected and examined.
• Data Analysis Phase - This stage involves analyzing the collected data and drawing
conclusions from the same. During the due diligence process, the team may not have
consistent findings, i.e., the team may uncover some issues that lead to a favourable
impression of the organization and some others that cause concern. The right approach to

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the process would be to focus on the organization’s financial health, its capacity to deliver
in future, its reputation and approach to working. The team should also get a respective on
the leadership of the organization.
The analysis of due diligence findings depends on a variety of factors. All factors need to
be considered and evaluated and the organization should balance them to arrive at a
decision. Once the team is sure that all factors have been considered and have been given
due weightage, it can give a positive recommendation.
• Report Finalization Phase – After the completion of data collection and analysis, the due
diligence team prepares the final report and submits the same to the investors. The
conclusions so presented in the report become an integral part of the decision making and
negotiation process.
• Due Diligence Reporting – The due diligence report contains the key findings of the
process. It is submitted to the management for consideration and adoption. The key features
of due diligence reports are as follows –
▪ It should reflect a fair and independent analysis and evaluation of financial and
commercial information.
▪ It should ensure collection, analysis, and interpretation of financial, commercial
and tax information in detail.
▪ The report should provide properly reviewed and analyzed financial
information to bidders and various stakeholders.
▪ It should provide feedback on auditing of the special purpose accounts.
The reports are prepared by analyzing and compiling the data collected during the due
diligence process. It helps to clearly point out the potential risks and a company’s current
financial situation. If the reports are meticulously prepared and presented, they help save a
lot of money, time, and effort for the management.
Professional consultants take up the task to preparing a due diligence report on behalf of
clients. They not only prepare a report, but also assist in making sound decisions. This also
helps the client save lot of money, and time spent on collecting and analyzing financial and
commercial information.

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VII TYPES OF DUE DILIGENCE
• Business/Commercial Due Diligence - It involves looking into the parties involved in the
transaction, prospects of the business and the quality of investment. The commercial due
diligence process aims to ‘get under the skin’ of the business, ensuring that the ‘direction
of travel’ over the period can be clearly understood, what the business strategy is and/or
how it may have changed and how this has contributed to the growth and development of
the business.
It will also consider in detail commercial aspects such as new business processes and
pipeline(s), the type and nature of existing client base, the strength (and length) of client
relationships along with a consideration of the sector and competitors etc.
Therefore the commercial due diligence process will cover:
▪ Business strategy
▪ New business processes, lost clients/projects
▪ Business strengths and potential weaknesses
▪ Customer relationships, contract lengths, lifetime values
▪ Competitors
▪ Budgets/forecast assumptions
i) Types –
(a) Operational Due Diligence - Aims at the assessment of the functional operation
of the Target company. Consideration of non-financial matters of a Target business,
which may include assessment of systems and processes, review of the incumbent
management team, staffing levels and other HR activities, or insurance
arrangements and risk assessment.
The main purpose of the operational due diligence is mainly to establish the likely
involvement of the new business owners in order to deliver on the budget/forecast
post acquisition. Therefore, the main focus is on reviewing the existing structure
and management team i.e. what are their backgrounds and experience, does the
team has the requisite breadth of necessary skills etc.
It will also focus on how the rest of the business is structured and/or whether certain
key departments are overstaffed or understaffed, how do current internal processes
operate and whether core business systems are ‘fit for purpose’.

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Therefore the operational due diligence process will cover:
▪ Structure of management team.
▪ Business organization structure
▪ Internal business processes
▪ Internal systems and controls
▪ Other issues e.g. Disaster recovery, data protection etc.
(b) Technical Due Diligence - Involves review & diligence of intangible assets like
Patents, Copyrights, Designs, Trademarks and Brands. It also includes assessing
the Target Company’s performance on current level of technology and further
scope of improvement in this regard.
ii) Some of the primary reasons for conducting Business Due Diligence include -
▪ Assess the opportunities available to the Target Company for margin
expansion.
▪ Validate the vendor assumed operational improvements in projections.
▪ To evaluate the competitive landscape and the technological trends along the
industry’s value chain which are key parameters to understand the business of
the Target Company.
iii) Key Focus Areas of Business Due Diligence –
(a) Technology/Intellectual Property - The buyer will be interested in the extent and
quality of the Target Company’s technology and intellectual property. Key
questions will revolve around the following –
▪ What domestic and foreign patents does the Target Company have?
▪ Has the Target Company taken appropriate steps to protect its intellectual
property?
▪ What registered and common law trademarks and service marks does the Target
Company have?
▪ What copyrighted products and materials are used, controlled, or owned by the
Target Company?
▪ Is the Target Company infringing on (or has the Target company infringed on)
the intellectual property rights of any third party, and are any third parties
infringing on (or have third parties infringed on) the Target company’s
intellectual property rights?
▪ Is the Target Company involved in any intellectual property litigation or other
disputes?
▪ What technology in-licenses does the Target Company have and how critical
are they to the Target Company’s business?

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▪ Has the Target Company granted any exclusive technology licenses to third
parties?
▪ Are there any other liens or encumbrances on the Target Company’s intellectual
property?
(b) Sales & Marketing - The buyer will want to fully understand the Target
Company’s marketing strategies, customer base including the level of
concentration of the largest customers as well as the sales pipeline. Topics of
inquiry or concern will include the following –
▪ Who are the top customers and what is the share of revenues from each of them?
▪ What customer concentration issues/risks are there?
▪ Will there be any issues in retaining customers after the transaction?
▪ How & what seasonality in revenue and working capital requirements does the
Target Company typically experience?
▪ Does the Target Company provide products, services, or technology the buyer
doesn’t have?
▪ What is the extent of sales returns and realization of sales?
▪ What revenue enhancements will occur after the transaction?
• Legal Due Diligence - It mainly focuses on the legal aspects of a transaction, legal pitfalls
and other law related issues. It covers both inter-corporate transactions as well as intra-
corporate transactions. Various regulatory checklists form a part of this diligence along
with the already existing documentation.
Finally the legal due diligence process aims to establish whether all of the elements of the
business ‘hang together’ from a legal point of view e.g. are all Clients under contract and
subject to the appropriate terms and conditions, are there any financially onerous terms in
agreements with suppliers or in certain circumstances with landlords etc.
Similarly legal issues relating to employees (are they operating under appropriate contracts
relevant to their seniority etc.), ownership of assets (whether physical or IP related), clarity
and accuracy of shareholder and mortgage/debt registrations and details of commercial,
employee or other disputes will be reviewed, analyzed and considered.
Therefore the legal due diligence process will cover –
▪ Contracts and terms with Customers.
▪ Contracts and terms with Suppliers.
▪ Office lease agreement with landlord.
▪ Employment contracts and service agreements.

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▪ Company secretarial.
▪ Asset ownership, IP ownership, licenses.
▪ Legal, commercial and employment disputes.
i) Some of the primary reasons for conducting Legal Due Diligence include –
▪ To better understand the Target’s legal arrangements and regulatory
compliances.
▪ Help in drafting the relevant M&A agreement.
▪ Identify Impediments to closing the deal.
ii) Key Focus Areas include –
(a) Material Contracts - One of the most time-consuming (but critical) components
of a Due Diligence inquiry is the review of all material contracts and commitments
of the Target company. Some of the categories of contracts that are important to
review and understand include the following –
▪ Real estate leases/purchase agreements.
▪ Review copies of all agreements affecting real property.
▪ Review of all the insurance agreements.
▪ Review of all guarantees and indemnities provided by the Target Company.
(b) Financing Agreements - Review copies of all agreements evidencing borrowings
by the Target Company, whether secured or unsecured, documented or
undocumented, including loan and credit agreements, mortgages, deeds of trust,
letters of credit, indentures, promissory notes and other evidences of indebtedness,
and any amendments, renewals, notices or waivers.
(c) Litigation and Regulatory Matters - Review a documentation relating to and
description of all pending, threatened or completed litigation, claims, suits and
proceedings in which the Target Company is, was or could be a defendant for the
past five years, including the nature of the litigation, the amount involved and any
opinion of counsel as to the probable outcome.
• Financial Due Diligence - Financial, operational and commercial assumptions are
validated here. This provides a huge sigh of relief to the acquiring company. Review of
accounting policies, audit practices, tax compliances and internal controls are done in detail
here. The financial due diligence typically covers a 5 year window e.g. 3 historical years
and 2 years in the future. The main aim being to review and ‘sense check’ all aspects of
tax compliance, accuracy of the basic bookkeeping, the key financial metrics and margins,

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as well as the overall quality of the management reporting for decision making in the
business.
In an M&A transaction on the financial front, the buyer will be concerned with all of the
Target Company’s historical financial statements as well as the reasonableness of the
Target’s projections of its future performance. Financial Due Diligence will involve a
review of historic data for the entire entity or possibly on specific projects, review of
forecast performance and funding requirements.
Therefore the financial due diligence process will cover –
▪ Historical financials.
▪ IT compliance track record.
▪ Gross profit, Operating profit, EBITDA %'s.
▪ Client and project profitability.
▪ Cost of sales and overheads.
▪ Cash flow management.
▪ Budget/forecast structure.
i) Some of the primary reasons for conducting Financial Due Diligence are outlined
below –
▪ Financial Due Diligence is conducted to support deal decision making,
negotiating, and eventually, post-announcement planning and execution.
▪ Gain understanding of financial position of Target Company.
▪ Arrive at the valuation of the Target Company and to negotiate the purchase
price.
ii) Key Focus Areas in Financial Due Diligence include –
(a) Quality of Earnings - Key questions will revolve around the following –
▪ Do the Target’s earnings closely approximate cash flows and if not, why?
▪ What do the Target Company’s annual and quarterly financial statements for
the last five years reveal about its financial performance and condition?
▪ Do the financial statements and related notes set forth all liabilities of the Target
Company, both current and contingent?
▪ What accounting treatment does the Target utilize in relation to its peers and
what is the reasonable estimates?

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▪ Are the Target Company’s projections for the future and underlying
assumptions reasonable and believable?
▪ What normalized reinvestments (including working capital and net capital
expenditure) will be necessary to every year to stimulate growth in operating
income? How do the historical reinvestments look like?
(b) Financials & Operating Trends - A focus on identifying and analyzing key
operating and financial trends that are important to gauge the likely future earnings
power of the Target. General queries revolve around the following –
▪ What are the key factors which are driving the margin expansion or
compression, rate of cash conversion and return on invested capital?
▪ How does the Target Company’s operating cycle looks like over the last 5
years? What are the reasons for its improvement / decline? How does the Target
Company foresee them going forward?
▪ What is the condition of assets and liens thereon? Are the assets used
productively?
▪ What is the impact of regulatory changes on the Target’s earnings potential?
▪ What is the Target’s performance with respect to KPI’s and what is the quality
and reasonableness of the benchmarks established?
▪ Are there any unusual revenue recognition issues for the Target Company or
the industry in which it operates?
▪ How is the business being impacted by related party transactions?
• Tax Due Diligence - Tax Due Diligence typically involves reviewing the tax position
adopted by the Target, adequacy of tax provisions made, status of tax holidays/ incentives
availed of by the Target and unabsorbed tax losses and depreciation. Thus, a tax Due
Diligence helps in understanding tax impact post the transaction and enables the
stakeholders to make informed decisions.
i) Some of the primary reasons for conducting Tax Due Diligence are outlined below
–
▪ Identify for action of inconsistencies in historical tax filings/ compliances, if
any, and quantification of tax exposure thereof.
▪ Analysis of tax positions taken by the Target and assessing their impact going
forward.
▪ Ascertain ongoing tax liabilities / litigations of the Target and what is the impact
on deal’s internal rate of return?
▪ Assessment of availability of tax attributes (tax holiday, unabsorbed losses,
etc.) of the Target to the buyer.

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▪ Identifying underreported tax liabilities and ascertaining whether all tax
liabilities are adequately provided for in the books.
▪ Identifying if an alternate transaction structure is required where potential tax
exposure in doing a transaction as per a given structure is significantly higher.
ii) Key Focus Areas for conducting Tax Due Diligence include –
(a) Recapture past losses upon change in shareholding - Under the Indian tax
regime, change in shareholding of a closely held Target company by more than
49% hampers its ability to carry forward unabsorbed tax losses (excluding
depreciation) which were otherwise eligible to be carried forward for eight years.
While conducting the Due Diligence, it needs to assess whether there has been any
change in the shareholding of the Target in the past which has impaired its ability
to carry forward the unabsorbed losses. Due Diligence also enables the buyer in
ascertaining the balance/ unexpired period for which the tax losses can be carried
forward by the buyer and in factoring the same in the valuation.
(b) Claim of tax holiday/incentives (Section 10AA, 80IA, etc.) - Under the Indian
tax regime, tax holidays/incentives can be availed of for a specified period subject
to the fulfilment of specified conditions. It is necessary to assess whether or not the
conditions prescribed for availing of a tax holiday have been complied with by the
Target Company, the correctness of such a tax holiday claim and the unexpired
period for which the tax holiday can be claimed by the buyer so that the buyer can
factor the same in valuation.
(c) Recoverability of tax refunds/credits - Tax Due Diligence helps the buyer in
ascertaining the quality and recoverability of tax refunds/tax credits like MAT
credit being claimed as eligible to be carried forward by the Target Company.
(d) Transfer pricing (TP) documentation - It needs to be assessed whether the TP
documentation has been duly prepared and maintained by the Target company.
• Mergers & Acquisitions – In an acquisition, a company buys another company (or even
part of another company); a recent example is Amazon's purchase of Whole Foods. When
two companies come together on equal terms, it’s a merger. In either case, due diligence
helps companies do the following –
▪ Make sure that all information reported by the seller is accurate.
▪ Find and mitigate any risks.
▪ Ensure compliance with legal and regulatory requirements.

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▪ Allow the deal to be priced based on facts, not assumptions.
Performing due diligence helps the buyer determine whether it actually will make the
purchase and how much it should pay. The process may be voluntary in some cases and
involuntary in others.
The concepts of soft and hard due diligence also come up within the M&A world. Hard
due diligence is the traditional process described in this article. Soft due diligence focuses
on culture fit and other elements related to how people work together. If the two cultures
of the acquiring and target companies seem like they won’t combine well, then the
companies may have to change personnel decisions, particularly with top executives and
influential employees.
Before they can put up a company for sale, the sellers need to do their work — some of
which is later used in the due diligence process. Key preliminary due diligence actions
include the following –
▪ Strategy planning and preparation.
▪ Exit planning (the seller determines how to transition out of the business once
it's sold).
▪ Formal marketing of the sale of the business.
Both buyers and sellers must sign nondisclosure agreements (NDAs) and confidentiality
agreements along with — or, for some key people, before — the LOI. Then due diligence
begins. The seller sends a confidential information memorandum (CIM), also called a deal
book, which provides crucial information about the company.
One of the first steps is to establish a document exchange. Pre-internet, this required a team
to visit (often multiple times) the seller’s location and physically handle documents. Much
of this work can now be done via a secure online data repository. The parties can post
documents and grant access to those who need to see them. They also have the luxury of
accessing documents at any time from their own office. However, site visits are still
important.
The results of the due diligence process (which should be compiled in a final report) will
indicate whether or not you should move forward with the deal. If you do, negotiation then
takes place, and you can make a final offer.
After the close of the deal, the companies issue a final announcement regarding the
transaction. From there, they begin integrating functions, staff, and operations.

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• Securities Sales - The phrase due diligence was first used for securities sales. Specifically,
securities sellers must disclose any material information they discover related to the
securities that they plan to offer investors. If they fail to disclose such information, they
are liable for criminal prosecution. Securities sellers research the offerings they are
considering selling, the backers of the securities, the owners of the company, the
performance history of the security, and other data in order to perform their analysis and
uncover pertinent material information.
Due diligence is used mostly for securities, but it can also apply to debt. When investigating
securities, financial advisors should look at the following areas (at a minimum) –
▪ Market capitalization (total value) of the company.
▪ Revenue, profit, and margin (investments, net income).
▪ Competitors and industries.
▪ Valuation multiples (e.g., price-to-earnings ratio).
▪ Management and share ownership.
▪ Balance sheet (bond ratings, dividends paid, debt-to-equity ratio).
▪ Stock price history.
▪ Stock options and dilution possibilities.
▪ Expectations.
▪ Long- and short-term risks.
▪ The amount of stock that the executives own.
▪ Income and revenue estimates for the next two to three years.
▪ Any long-term trends that might affect the corporation.
▪ Details about partnerships, joint ventures, IP, and new merchandise/companies.
• IPOs - Before a company's IPO, attorneys, underwriters, and the company itself have to
prove to the SEC that the declarations the company made when filing are true. Key
employees and those in the C-suite answer questions about areas such as the business plan
(including marketing), product development, intellectual property, and revenue
projections, with an eye to finding possible pitfalls. Third parties (e.g., vendors and
customers) may be interviewed, as well. Companies can also expect an audit of their
records, from HR to finance to licenses to tax filings and more.

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• Banking - Banking and financial services companies may perform due diligence on
potential customers to make sure they are not involved in illegal activities that could bring
legal action against the institution.
• Enhanced Due Diligence - Due diligence is not always enough. In such cases,
organizations perform enhanced due diligence, which is required when a potential banking
customer poses a higher risk of being connected to money laundering, terrorist financing,
or other financial crimes. A customer may run a higher risk due to their business activity,
ownership structure, or anticipated or actual amount and types of transactions (this includes
transactions that involve higher-risk jurisdictions). In cases where enhanced due diligence
is necessary, the bank should request the following information, both upon the creation of
the account and on a recurring basis afterward –
▪ Nature of the business.
▪ Purpose of the account and expected types of business transactions.
▪ Source of account funds and other assets.
▪ List of all individuals who have ownership or control over the account (e.g.,
beneficial owners, signatories, guarantors).
▪ Type of businesses of all individuals with ownership or control over the
account.
▪ Financial statements.
▪ Key business documents.
▪ References.
▪ Where the customer resides and the primary trade area.
▪ Where the business is located and the primary trade area.
▪ Proximity of the bank to the customer's residence, place of business, and place
of employment.
▪ Expectations of routine international transactions.
▪ Description of business operations, anticipated volume of transaction, and total
sales.
▪ Major customers and suppliers.
▪ Explanations for any changes in account activity.
• Simplified Due Diligence - Unlike enhanced due diligence, simplified due diligence
means performing a less rigorous version of standard due diligence. The organization can
implement simplified due diligence when the customer runs a very low risk for money
laundering, terrorist financing, or other financial crimes. This term is more prevalent in the
European Union and a few Asian countries than in the United States.

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• Contingent Due Diligence - Contingent due diligence is a term used in real estate to
designate one of the status periods before the deal is final. During the contingent due
diligence phase, the buyer can terminate the deal without penalty (generally for any
reason).
VIII OTHER KEY POINTS IN DUE DILIGENCE
• DUE DILIGENCE USE FOR COMPANIES
The questions raised during due diligence should drive further investigation. “If you find
something that appears problematic, you have to do further investigation,” says Charles
Elson is the Director of the Weinberg Center for Corporate Governance at the University
of Delaware, and co-author (with Alexandra Lajoux) of the book The Art of M&A Due
Diligence: Navigating Critical Steps and Uncovering Crucial Data. “In other words, if
something comes to your attention that appears problematic, you then need to determine
how serious is the issue? Does it affect the price of the transaction? Or more concerning,
does it affect the ability to enter in the transaction at all?”
Due diligence also protects shareholders by determining if the transaction makes sense in
terms of valuation.
A letter of intent (LOI) is a document that states the buyer and seller are negotiating a
merger or acquisition but have not yet reached a final agreement. Most LOIs have a
material adverse change (MAC) clause that allows the parties to change or terminate the
deal if new information comes out.
Once the companies complete their due diligence, the process will drive one of the
following results for the proposed deal –
▪ Repricing.
▪ Changing the terms or scope.
▪ Canceling.
▪ Moving forward as originally planned.

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• TIMELINES FOR M&A.
Due diligence commences only once there have been positive initial discussions, which
lead to a broad agreement between the parties on the key issues i.e. Heads of Agreement.
1. Third Party Approach.
2. Initial Discussions.
3. Heads of Agreement.
4. Due Diligence.
5. Renegotiation/Warranties/Indemnities.
6. Purchase and Sale Agreement.
• DRAFTING OF THE DUE DILIGENCE REPORT
While drafting the due diligence report the 3 W’s have to be addressed.
▪ Who is your target audience?
▪ What is your objective?
▪ Which are the aspects that will be key to decision making?
Superfluous information should be avoided to make the report brief.
• WHEN TO CONDUCT DUE DILIGENCE
Due diligence takes time. Sellers should prepare as much as they can before they sign a
deal — in other words, the target company should compile the basic information while the
company is being marketed (two or three months is a realistic timeline). The seller may
have a formal auction to draw bids from multiple buyers.
After the parties sign a letter of intent, the process truly begins. The parties should complete
due diligence before the deal is scheduled to close, so there's time to fix problems, change
the price, or cancel the transaction.
• HOW LONG DOES DUE DILIGENCE TAKE?
While the Letter Of Intent will delineate a time frame for due diligence, the general
consensus is 30-60 days, but each merger or acquisition is different. Due diligence might
run longer or shorter; the benchmark time frame exists to ensure that the due diligence
process doesn’t become a sprawling, unending monster with no end in sight.

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Consider the following when setting a timeline –
▪ The complexity of the deal (e.g., how many subsidiaries does the acquired
company have?).
▪ What business (industry and vertical) is the acquired company in?
▪ How large is the target company?
▪ What kind of merger or acquisition is it?
▪ Are any international properties involved in the deal?
▪ The legal portion of the process can take 10-20 percent of your time and effort,
and other portions take up the remaining 80-90 percent.
• CAN COMPANIES CAPITALIZE DUE DILIGENCE COSTS?
The answer is complicated. The buyer should always consult legal and financial
professionals to ensure that they are categorizing the costs correctly.
For accounting purposes, due diligence and other acquisition-related costs cannot be
capitalized and must be considered as expenses.
Charles Elson of the University of Delaware says, “You thought that [an M&A deal] was
going to be treated one way, tax-wise, and instead the transactions treated another. It kills
the economics of it. Taxation is very significant in this process.”
For tax purposes, due diligence and other acquisition-related costs may be treated as capital
expenses if they occur on or after the bright line date. On this date, the seller indicates they
are committed to moving forward with the merger or acquisition, demonstrated by either
the execution of an LOI or by the buyer’s board of directors authorizing or approving the
terms of the transaction.
If one or both companies abandons the deal, the parties will probably not be able to
capitalize the costs of due diligence for tax purposes.
• WHO CAN CONDUCT DUE DILIGENCE?
Due diligence is a demanding, high-pressure process that requires a lot of skill and
expertise. The buyer is the primary responsible party, but they can bring in third-party
advisors for support (companies with a lot of experience may perform the entire process
in-house). External consultants could range from a single person for a small deal to a vast
team for a multinational corporation. Regardless of the size of the buyer and the advisory

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team, the buyer should try to engage both internal and external experts to help them
evaluate the deal (based on available funds). These experts should include the following –
▪ M&A attorneys (for smaller deals, using an outside expert to lead the process
allows the buyer and seller to focus on running their existing businesses).
▪ Attorneys and experts in common fields, such as labor.
▪ Attorneys and experts in fields specific to the transaction (e.g., environmental
authorities for the purchase of an oil spill cleanup company).
▪ Accountants, including CPAs.
▪ Bankers.
▪ Analysts.
▪ MBAs.
▪ Limited partners.
▪ VCs (for larger deals, if outside funding is needed to complete the deal).
▪ Specialized consultants.
• WHO CAN PREPARE A DUE DILIGENCE REPORT?
The people and teams (both internal and external) involved in the due diligence process
should prepare the report based on their findings. Larger buyers may bring in the corporate
development team, or they may outsource the task to a third party.
• DUE DILIGENCE TECHNIQUES BY BRETT CENKUS
Regardless of the business area, communication is key both during and after due diligence.
The concept of 360-degree communications, wherein you keep all required parties up to
date, is a good rule of thumb. This doesn't mean everybody gets to know everything,
however. Create a communication plan before due diligence, so you have a prepared
strategy once you get underway.
“The people who are doing the implementation … don't know the company well, like the
C-suite, who don't really want to do that work,” says Brett Cenkus. “It starts by having a
good connection between who's going to execute and who’s [going to] set it all up.” Both
the buyer and seller should set up a structure for the process. As Cenkus explains,
“From the seller’s standpoint, put the information out there in a very clear, structured
manner. It's really as simple as organizing the information, and being out ahead of it in a
really structured manner.
“On the buyer’s side, it's similar,” he continues. “If they're not organized in the information
they're asking for, and not having high enough level people in the weeds, at least at the
beginning, to be sure they can push the whole process out the door in a structured manner.

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“The process, at least at the beginning, if it's going to be set up right, requires high-level
input from the people who know where the bodies are buried (if it’s the seller) or what
they're looking (if it’s the buyer),” Cenkus concludes.
This structure should include some centralization to avoid duplication of work and
propagation of errors. The buyer and seller should each appoint a gatekeeper.
“From the seller's standpoint, to flow through one person and know exactly what's been
requested can feel like a little bit of an impediment if the buyer starts dealing directly with
the seller’s people,” explains Cenkus. “But that really starts to create problems.
“Number one, you don't have a good record of what's being communicated. Number two,
what was communicated could be incorrect or not structured right. Number three, there's
repeat questions. People start to get really frustrated in that administrative flow.
“From the buyer’s standpoint,” he continues, “the problem is even worse, which is where
you want to make sure that everyone who needs information is getting it. So it's really
[about] centralization. It feels like a little bit of an impediment to how the process is run
overall, but it will make it smoother and make sure there aren't holes in the process.”
It’s a good idea to use a due diligence checklist to keep track of in-progress and completed
items. That way, you can document and manage every detail as you move through the
process.
Cenkus adds, “When you're able to give it [information] in a structured way and be very
forthright, it makes buyers feel more comfortable and helps get deals closed.”
During due diligence, SWOT analysis can help you manage the process and stay focused
on areas that need the most attention.
• WHAT HAPPENS WHEN DUE DILIGENCE EXPIRES?
Ideally, you wrap up due diligence and the buyer decides whether to go forward with the
purchase. If you don’t complete the process on schedule, you have a couple of options:
You can either extend the due diligence period until you complete the process or move on
without completing the deal.

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• DUE DILIGENCE DOCUMENTATION
The final output of Due Diligence is presented in the form of a Due Diligence report. A
good Due Diligence report should not only list the material issues identified in Due
Diligence but also provide recommendations on how each issue could be dealt with.
Potential recommendations include requesting further information, conducting further Due
Diligence, capturing the information into buyer’s valuation of the Target, restructuring the
transaction or purchase price payment, including in the transaction documents the
completion of remedial action as a condition precedent to completion, a pre or post
completion undertaking or covering off relevant risks with an indemnity.
Based on the findings of a Due Diligence exercise, the parties may negotiate the
commercials of the M&A transaction, which could range from debt-like adjustment to the
agreed consideration or taking appropriate indemnities from the seller or creating an
escrow mechanism. At times, this may also necessitate structuring a deal to ensure that the
interest of the buyer is protected. The acquirer will also seek legal protection. Use of escrow
accounts, indemnities and warranties are all common outcomes of the Due Diligence
process. Typically, these will be included in any Share Purchase Agreement, with the
vendor providing representations at the point of purchase. Should such provisions be
refused by the vendor, then an acquirer may have to be prepared to walk away from the
deal.
Some issues such as deficiencies in basic reporting cannot always be addressed pre-deal,
despite the risk they may present to the acquirer. These can be dealt with using a post-deal
plan whereby vendor and acquirer work together post acquisition to validate pre-deal
assumptions, develop integration strategies and commence the delivery of short-term goals.

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BACKGROUND
The origin of the term due diligence stems back to the 1930s, though the practice was most
likely already in action during the mid-fifteenth century.
The legal term originally comes from the US, where the process is referred to as ‘reasonable
investigation’ in the US Securities Act of 1933. The act endorses a law against dealers accused
of disclosing inadequate information regarding a purchase of property or securities to investors.
With proper due diligence, all involved parties are educated, informed, and covered in a
transaction, an arrangement, or any other kind of agreement. Think of it like homework: It
should be completed before the close of a deal to provide a buyer with a guarantee of what it’s
getting.
In M&A, due diligence helps buyers and sellers make informed decisions. The process
validates the accuracy of the information presented, ensures that the transaction complies with
the criteria laid out in the purchase agreement, verifies that the parties consider all benefits and
risks, and allows the buyer to know what they are buying.
I ROLE OF DUE DILIGENCE
Due diligence increases the chances of a successful deal by uncovering major problems or
assets that need to be addressed. Additionally, due diligence can lead to a more accurate pricing
of the transaction. Without proper due diligence, unforeseen problems may arise after the deal
closes. At that point, they fall on the buyer, which may not be able to address them through
litigation.
Charles Elson is the Director of the Weinberg Center for Corporate Governance at the
University of Delaware, and co-author (with Alexandra Lajoux) of the book The Art of M&A
Due Diligence: Navigating Critical Steps and Uncovering Crucial Data. He says, “[When]
you're buying a business, you buy all kinds of potential liabilities, and you want to be clear on
what are the pitfalls of the transaction.”
Certainly, due diligence incurs upfront costs, but the outlay is justified because it provides
buyers and sellers with peace of mind and a level of comfort with their expectations.

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Ultimately, it helps ensure the buyer and the seller are equally knowledgeable about the
transaction.
As Elson says, “You want to assure yourself that you've appropriately investigated the affairs
of the counterparty so that [the] transaction, a year later, will be effective. It's a legal term
basically offered from a director standpoint, meaning that you carry out your fiduciary
responsibilities appropriately in terms of the transaction itself. It's there to protect you, from a
legal standpoint, if things go bad.
“Basically,” he continues, “you're trying to understand the other person's business — ‘Is what
I'm buying really going to be complementary to me? And will it not only be complementary,
but also increase my value, or do I have a lot of problems in acquiring? If so, do I need to adjust
the purchase price, or do I frankly need to even engage in the transaction?’ That's the issue.
And there's just a ton of litigation around this stuff.”
II IS THERE A DIFFERENCE BETWEEN DUE CARE AND DUE DILIGENCE?
In most areas of business, due care is not a well-defined concept. Informally, it means taking
the steps that an ordinary, reasonable person would in similar circumstances, but is rarely used
in business circumstances.
In IT — specifically, IT security — the two terms are different but related. With due care, the
organization develops a structure that contains security protocols and procedures; with due
diligence, it follows those protocols and procedures.
Some in the legal world say due care and due diligence are the same, but others contend they
are different, albeit related in a manner similar to the IT description above.

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III HEWLETT-PACKARD-COMPAQ CASE STUDY
This case is an illustrative example of how a strategic due diligence approach can lead to better
perform a merger and acquisition deal for success. It shows also how this approach may help
to point out important elements by taking the time to perform the due diligence process in a
thorough way. It shows the importance of a strategic approach on the due diligence exercise
for reaching success with a concrete example. We will summarize the case using the strategic
due diligence definition above and see how it has been applied in the case of Hewlett-Packard
– Compaq deal.
The information to the cases was found from different articles and documents relating to the
M&A. Some of the information came from HP website, where we could find concrete figures
of the deal and description of the company. Some information came from documents and
exhibit published by the SEC on the website.
• Companies profile –
i) Hewlett– Packard - HP is a technology company that operates in more than 170
countries. It was founded in 1939 by Willian Hewlett and David Packard, two graduates
in electrical engineering. It is now among the world's largest IT companies with
revenue totaling $107.7 billion for the four fiscal quarters ended Jan 31st 2008. HP was
incorporated in 1947 and began offering stock for public trading 10 years later. HP
introduced its first personal computer in 1980. Carleton S. Fiorina replaced Platt as
president and CEO of HP in 1999. Today the CEO is Enrique Lores.
ii) Compaq Computer Corporation - It was an American personnel computer company
founded in 1982. Today it is named Hewlett-Pachard. The company was formed by
Rod Canion, Jim Harris, and Bill Murto – former Texas Instruments senior managers.
The name "COMPAQ" was derived from "Compatibility and Quality", as at its
formation Compaq produced some of the first IBM PC compatible computers.
• Merger announcement –
On September 3rd 2001, Carly Fiorna announced HP's plan to acquire Compaq in a stock
transaction valued at $25 billion. In fact she was convinced that turning the company
around required more than just strategy from within. The goal was to become more
competitive since both HP and Compaq had been hurt by price wars in the computer
industry.

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• Analyst criticism –
Moreover Mr. Sacconaghi a computer analyst for C.Bernstein & Company who has been
an outspoken critic of the deal, was also clearly impressed by the enormous and diligent
effort the two companies had put into planning in the pre-deal phase how the combined
entity would operate. In fact after 2 years of the deal he finally issued a “buy”
recommendation on Hewlett Packard. He justify his position on 2 aspects”.
▪ First the fact that Hewlett-Packard shares have dropped about 25 percent since
the deal was announced, from 23.21 a share to 17.44, which increases the
attractiveness of the stocks.
▪ Second, Mr. Sacconaghi pointed out the “enormous and diligent effort “Hewlett
Packard and Compaq had put into planning how the two companies are put
together. So he says the new company can achieve sizable cost-cutting gains
over the next year or so, partly by eliminating 15.000 workers from a combined
payroll of 150.000.
• A strategic due diligence exercise in HP
In fact as mentioned by Sacconaghi, the two companies have put enormous and diligent
effort in planning the pre-deal phase (i.e. DD) how both companies would operate. Hewlett
has also emphasized a lot on assessing the deal attractiveness by defining the rational of
the merger and acquisition. In fact they have assessed the deal rationale by defining their
strategy and pointing out its main value driver in the integration planning process.
Moreover the cultural aspect of the deal has been the center of attention since it is an
important element for HP.
The company has performed numerous due diligence analysis to assess the company
potential from the merger and as well evaluate the future outcomes of the deals.
i) Strategic planning to assess merger attractiveness –
Strategic planning is the outcome of a process of good governance, deliberation and
vigorous debate among board members. During 2 ½ years, the HP board and
management team have thoroughly analyzed a wide range of strategic alternatives and
concluded the merger with Compaq represents the single best way to create sustainable
shareowner value across our businesses.
The merger with Compaq substantially improves both the market position and
profitability of our enterprise business, it comprehends that scale and profitability are
linked in the consolidating PC business and it recognizes that growth in our imaging

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and printing business is linked to the innovative capabilities of HP Labs and our
computing systems business (Lohr, 2002).
In exhibit 1, we see the analysis of HP with details on the attractiveness of the deal.
The deal is presented as a unique opportunity to ameliorate the company position. It is
also viewed as a way to drive the company stronger through improved financial records
(ex - EBIT> from 5 to 9%), and complementary R&D. Also it evaluates the potential
synergies expected of 2.5 billion a year and the value created for shareholders through
premiums. Then it assesses the ability to execute which emphasize on the key value
creation at the integration stage.
Exhibit 1 – HP’s Position on the Merger
Source - https://investor.hp.com/financials/sec-filings/default.aspx Form 425 filled by SEC on
December 19, 2001.

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ii) Detailed planning
At HP, a detailed integration plan was developed long before the merger closed. The
HP– Compaq plan was incredibly detailed and comprehensive. What would the new
organization structure be, overall and in all its details? What would the product lines
be? Who would manage the largest accounts for the new company? What would the
top management structure be? Which business processes would be used? Which IT
systems? The result was a detailed roadmap laying out what needed to be accomplished
in every area of the company, who was responsible, and when it had to be completed.
iii) Forward Looking statements
HP has prior to the deal elaborate forward looking statements which involve risks,
uncertainties and assumptions. It includes creation of benefits and opportunities,
industry and customer trends, sources and rates of future growth of both business and
markets generally; improved profitability and operating margins; future earnings and
accretion to earnings and /or share price; achievement of synergies; overall impact of
the merger and segment contribution margins; execution of integration; differentiation
against competitors; planned strategies and objectives of future operations.
The risks, uncertainties and assumptions referred to above include the challenges of
integration and restructuring associated with the merger and achieving anticipated
synergies; the ability of HP to retain and motivate key employees; the timely
development, production and acceptance of products and services and their feature sets;
the challenge of managing asset levels, including inventory; the flow of products into
third-party distribution channels; the difficulty of keeping expense growth at modest
levels while increasing revenues; the possibility that the merger may not close or that
HP or Compaq may be required to modify some aspects of the merger in order to obtain
regulatory approvals; the difficulty of maintaining pro forma market share and revenue
following the merger.
iv) Importance of cultural matters
Webb McKinney who is leading the integration planning with Compaq's Jeff Clarke,
pointed out the fact that the real strength of this integration with Compaq and it is the
vision that we would end up with one strong new company. And in order to do that
culture and cultural integration and how you get things done and how you work
together and what kind of a place this feels to work for all of the employees is at the
heart of the matter.

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The company conducted 130 focus groups already in both Compaq and Hewlett-
Packard. As part of the "cultural due diligence," some interviews and focus groups
where conducted to analyze both companies' cultures.
Then such cultural questions in the due diligence processes are relevant for the deal
success: How will the new organization work? Will I have a voice and will I be valued
in the new company? How will the governance structure be set up? Who's in charge?
What happens if you don't how?
v) Outcomes of the merger
Whereas many have criticized the success of the deal at its announcement, the merger
has been in reality a success.
In fact the cultural integration was largely successful. In fact the deal created an 87
billion global technology leader. HP became a big competitor to IBM, Sun and Dell. It
largely succeeded the cultural integration and captured beyond the expected synergies
with 150% of synergies captured. ($3.7 billion /year) In fact the expected annual
synergies amounted to 2.5 billion annually (www.hp.com).
The idea is that successfully acquiring and integrating businesses only occurs through
a disciplined process.
• Analysis on the performance
This case is a concrete example of how a strategic due diligence might be used by a
company to reach success. In fact one should remember that the strategic due diligence aim
is to answer two questions as mentioned above which help to know if the deal is
commercially attractive and if the buying company possess the capabilities to realize the
targeted value. It requires an internal and external inquiry to assess the rationale of the deal.
HP has through its different exercises analyzed these two main concerns. In fact it didn't
rely on financial and legal aspects of the due diligence only but instead it has performed a
thorough due diligence exercise by planning it.
For the first question which is assessing the commercial attractiveness, the company has
analyzed through different perspectives how the deal would create value. The company has
also through forward looking financial statements assessed the competitive position the
deal would create and all the competitive elements relevant to the market and the deal
creation.

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Then for the second question which is about assessing whether the company has the
abilities to meet the targeted value, HP has performed a deep analysis of its capabilities
and ability to manage critical success factors. In fact its ability to meet the potential
synergies has been assessed.
It also has assessed the importance of the cultural aspect for the company and well
integrated it in the due diligence exercise as a key success factor.
Then we see that HP has at the very beginning adopted a strategic way of performing the
due diligence by planning this process in a efficient way and putting enough effort in the
critical success factors.
IV THE CHALLENGES OF DUE DILIGENCE
Due diligence poses a number of challenges. Working through these issues is essential to
ensuring that the process reveals all connected information and the transaction is performed
legally.
• It can be difficult to ensure that the parties meet all applicable legal and regulatory
requirements.
• Buying a private company draws more scrutiny than buying a publicly traded company, as
private companies haven't gone through the examination required for a public offering.
• If the deal includes international components, companies must comply with the Foreign
Corrupt Practices Act and international accounting standards.
• Every deal is unique, so every process has to be customized. This is even more complicated
with the different types of M&A structures - for example, a stock transaction versus cash
or an acqui-hire (i.e., buying a company to gain key personnel).
• Sellers may not be ready to step aside after you complete the deal. This is hard to plan for,
and due diligence can't uncover it.
• It may take 12 to 16 months for a certified exit planning advisor to prepare a transition
plan.
• Sellers may not start preparing information soon enough. It should happen when the
company is being shopped around, not after the deal is signed. Deals often fail due to
inadequate preparation and transition planning.
• Companies must keep on top of changing regulations.
• Sellers may be reticent to provide all information requested by the buyer, especially if it's
negative and may impact the final price, or if it takes lot of time to gather.

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METHOLODOLOGY
All information gathered in this study is collected from secondary source which include
company’s website, internet blog about Due Diligence, E-book and many more.
These checklists strive to cover mergers and acquisitions in general, but they may not include
some documents and information that are specific to particular fields, and others that may not
apply to all deals. Buyers should review the lists and add or delete items as needed. It can help
overcome or minimize risk.
I CHECKLIST FOR BUSINESS DUE DILIGENCE –
• Market Review including market mapping, market size, key players, industry value chain,
value drivers, market potential, etc.
• With respect to each product line, understand the Target Company’s existing marketing
strategy and any contemplated changes.
• Obtain a summary of significant new products, technologies or processes currently under
development.
• Agreements related to the marketing of the Target company’s products, franchise
agreements, Target company sales forms or literature, including price lists, catalogs,
purchase orders, etc.
• Technology agreements, documents pertaining to proprietary technology developed /
owned by the Target Company including copyrights, patents filings, copy of all permits
and licenses necessary to conduct Target Company’s business.
• Understand the status of the relationships with major suppliers and vendors, including a
description of any supplier quality issues.

38
II CHECKLIST FOR LEGAL DUE DILIGENCE –
• Memorandum and Articles of Associations and bye laws.
• Corporate regulations including special industry policies, practices and procedures
• Employment agreements.
• Prospectus filed at the time of raising funds from public.
• Copies of any lawsuits involving the Target Company or the subsidiaries or any such
decrees, orders or judgments of courts or governmental agencies.
• Documents filed with ROC for registration of Charges or Immovable properties.
• Any settlements made in any of the litigations and if so documents relating thereto.
• Mortgages, financial or performance guaranties, indemnifications, equipment leases or
other agreements evidencing outstanding loans which the Target Company is a party or
was a party within past three years.
• Sample Checklist for documents and information related to litigation and legal issues that
a seller might request from a buyer.
Legal Due Diligence Checklist.
Legal Owner Complete? Date of
Completion
Notes
Filed and pending litigation, along with total
complaints and pleadings.
Threatened or pending claims facing the
company.
Pending or threatened governmental
proceedings against the company.
Settled litigation, including terms of the
settlements.
Matters in arbitration.
Consent decrees, judgments, injunctions, or
orders.
Insurance covering claims, along with notices
to insurers.
Attorney letters to auditors.
Civil litigation.
Compliance and regulatory matters.
Criminal Law.
Human rights.

39
III CHECKLIST FOR FINANCIAL DUE DILIGENCE –
• Audited financial statements for the historical period – linked to schedules, groupings and
the trial balance along with the auditors’ report and notes to the account.
• Analyzing Shareholding pattern of the Target Company over the last 3 years.
• Latest copy of CIBIL report and credit rating obtained by the Target Company.
• Details of changes made in accounting policies in the historical period and quantify the
impact of the same on historical results.
• Management letters or special reports by auditors and any responses thereto for the last
three financial years.
• Sample Checklist contains documents and information related to finance that a seller might
request from a buyer.

40
Financial Due Diligence Checklist
Financial Owner Complete? Date of
Completion
Notes
General expenses.
Profit margins.
Where revenue comes from.
Profits increasing or decreasing.
List of creditors and debtors.
Assumption of debt obligations.
Financial resources available for operations during
the transition.
Financial resources available to covers transaction
related costs.
Conditions on assets and liens.
Problems with all existing contracts.
Litigation risks.
List of required capital expenditures and
investments.
Deferred capital expenses.
Accuracy of future projections.
Uncommon revenue recognition issues that impact
the company or industry.
AR Aging.
Other AR Aging.
Quality of earnings report.
Unedited financial statements with comparable
statements for the last year.
EBITDA and adjustments.
Financial statements from the last 3-5 years.
Margin statements.
List of one-time expenses.
Future budgets.
AP schedule.
Documentation of accounting procedures.
Cash flow and cash management techniques.
Existing short - and long - term debt.
Interest rates on existing debt.
Ability to service existing debt.
Ability to secure more financing.
Shareholder value analysis.
Compatibility audit.
Reconciliation audit.
Fixed and variable costs.

41
IV CHECKLIST FOR TAX DUE DILIGENCE –
• Assessment status for the past three years with income tax returns and annexures.
• Historical tax filings & tax computations.
• Copies of all notices, intimations, etc., received in the last three years.
• For the current financial year (pending return of income), analyze details of all advance
taxes paid (if any).
• Analyze indirect taxes such as GST/ Customs Duty.
• Sample checks of withholding tax compliance.
• Sample checklist documents and information related to taxation that a seller might request
from a buyer.
Tax Due Diligence Checklist
Taxes Owner Complete? Date of
Completion
Notes
The last five years’ federal, state, local, income,
sales, and other tax returns, plus any international
returns filed.
Copies of correspondence or notices from foreign,
federal state, or local taxing authority for filled tax
returns, along with failure to file notices.
Correspondence with tax authorities.
Out-of-the-ordinary correspondence with tax
agencies.
Government audits.
IRS Form 5500 for 401(k)s.
Settlement documents from the IRS or other taxing
institutions.
Agreements that were or change the statute of
limitations on taxes.
Net operational losses or credit carry forwards.
Effects of changes in control on the availability of
carry forwards.

42
V OTHER CHECKLISTS FOR MERGER AND ACQUISITON.
• Technology and Intellectual property Due Diligence Checklist.
This checklist contains documents and information related to technology and intellectual
property that a seller might request from a buyer.
Tech & IP Owner Complete? Date of
Completion
Notes
IT costs.
IT upgrades needed.
Documentation of disaster recovery plans.
Domain names owned or used.
Patents held (both foreign and domestic).
Trademarks and service marks held.
Copyrighted material used or owned.
IP protection processes, including standard
agreements with employees, ex-employees,
and consultants.
Any exceptions to standard IP protection
agreements.
Trade secrets and steps to protect them.
Current IP litigation.
Trademark disputes that are in process.
Which software titles are critical to standard
operations, and licenses for that software?
How open source software is used?
Odd or unusual escrow arrangements.
Research and development budget and plans.
Pending patent applications.
Pending patents clearance documents.
Identities provided to or obtained from third
parties for IP.
Liens on IP.
Exclusive tech licenses that have been issued
to third parties.

43
• Customer/Sales/Suppliers Due Diligence Checklist.
This checklist contains documents and information related to customers, sales, and
suppliers that a seller might request from a buyer.
Customer / Sales / Supplies Owner Complete? Date of
Completion
Notes
Issues that may cause customers to leave
(including the potential buyer).
Top customers and revenues.
Customer satisfaction.
List of customers lost within 3-5 years.
Customer credit policies.
Customer backlog.
Order book.
Concentration risks.
Sales pipeline.
Supply chain.
Warranty issues.
Sales terms and policies.
Levels of exchanges and refunds.
Sales compensation.
Seasonality of revenue.
Key supplies.
Breakdown of cost of goods sold.
Product development expense.
Supplier service agreements and insurance
coverage.

44
• Strategic Fit Checklist.
This checklist contains documents and information related to the strategic fit of the deal
that a seller might request from a buyer.
Strategic fit Owner Complete? Date of
Completion?
Notes
Fit based on business realities or expectations.
Are target company’s products complementary to
buyer’s products?
Length and cost of integration process.
Cost savings and other synergies that may occur
after integration.
Will marginal costs will rise after integration?
Possible revenue enhancements after integration.
Retention plan for key staff members.

45
• Antitrust and Regulatory Due Diligence Checklist
This checklist contains documents and information related to antitrust and regulatory issues
Antitrust and Regulatory Owner Complete? Date of
Completion
Notes
If the buyer completes with the target company,
plans to understand and work around limitations
imposed on the scope or timing of diligence
findings.
For companies in an industry where regulatory
approval of an acquisition is required, understand
the process of seeking and obtaining approval.
Confirm the company’s involvement in antitrust or
regulatory inquiries or investigations.
How could consolidation in the company’s
industry impact the regulatory approval?
Scope of antitrust issues.
How to address issues required in preparing a
Hart-Scott-Rodino filing (if needed) and how to
respond to any requests from the DOJ or FTC.
Determine if Exon Florio Amendment is relevant
(for deals involving national security or foreign
investments)
For a buyer that is a foreign entity, what
Department of Commerce issues may arise.

46
• Insurance Due Diligence Checklist
This checklist contains documents and information related to insurance that a seller might
Insurance Owner Complete? Date of
Completion
Notes
Self-insurance arrangements.
Umbrella policies.
Car insurance.
D&O / key person insurance.
E&O insurance.
Employee liability insurance.
General liability insurance.
Health insurance.
Intellectual property insurance.
Worker’s compensation insurance.

47
• General Corporate Matters Checklist
This checklist contains documents and information related to general corporate matters that
General corporate matters Owner Complete? Date of
Completion
Notes
Charter documents, such as certificate of
incorporation and bylaws.
Subsidiaries lists, including charter documents.
Certificate of good standing and tax authority (if
applicable)
Jurisdictions where the company and its
subsidiaries conduct business.
Onsite reviews with business owner.
List of current officers and directors.
List of all security holders (common, preferred,
options, warrants)
Stock option agreements and plans, including
standard documents and deviations.
Stock sale agreements.
Stock appreciation plans and related grants.
Agreements that grant restricted stock options.
Stockholder and voting agreements.
Preemptive, registration, redemption, or co-sale
rights related to stocks.
Who are the stock owners?
Agreements restricting cash dividend payments.
Warrant agreements.
Proof that securities were legally issued, including
applicable blue sky laws.
Business plan and strategic goals.
Complexity of company.
Recapitalization/restructuring documents.
Cost and process of merging with subsidiaries.
Products and services offered.
Market analysis
Online presence.
Minutes of stockholders’ meetings.
Minutes of board of directors and board committee
meetings.

48
• Material Contracts Due Diligence Checklist.
This checklist contains documents and information related to technology and material
contracts that a seller might request from a buyer.
Material contracts Owner Complete? Date of
Completion
Notes
Why is the owner selling?
Have there been any previous attempts to sell?
Has the company merged with or acquired other
companies?
Contracts with customers and supplies.
Contracts that involve payments exceeding a
material dollar amount.
Equipment owned or leased.
Contracts that, if terminated, would bring about a
material adverse effect on the company.
List of parties that have to approve material
contracts following a shift in control or
assignment.
Contracts or agreements that impose competition
restrictions on the company (or the buyer) in lines
of business, in a geographic region, or with another
person.
Credits agreements, guaranties, and loans.
Distribution, sales agency, dealer, or advertising
agreements.
Equity finance agreements.
Exclusivity agreements.
Franchise agreements.
Indemnification agreements.
License agreements.
Limited liability company / operating agreements.
Partnership /Joint venture agreements.
Power of attorney agreements.
Real estate leases/purchase agreements.
Settlements agreements.
Union contracts/Collective bargaining
agreements.

49
• Employment/Management Due Diligence Checklist
This checklist contains documents and information related to employees and management
Employment/Management Owner Complete? Date of
Completion
Notes
Organization chart and biographical information
for management.
Officer, director, key employee, and related party
employment, consulting, and loan agreements, and
documents pertaining to additional transactions
with those parties.
Officer, director, and key employee compensation
schedule for the three fiscal years; salary, bonuses,
and non-cash recompense (e.g., car or property
usage) as separate line items.
Employment guides and protocols.
Employee count, including current employees,
vacant positions, anyone due for retirement, and
those who have resigned but not yet left.
Key personnel gained as part of merger.
Agreements or incentive arrangements for key
employees who will remain with the buyer.
The likelihood of layoffs and severance due to the
acquisition.
Existing operational redundancies and difficulty of
eliminating them.
All nondisclosure, non-competition and non-
solicitation agreements between the company and
employees.
Current issues, like alleged wrongful termination,
harassment, discrimination, or other legal cases
pending with current or former employee.
How the company treats personnel as independent
contractors compared to employees.
Criminal proceedings or notable civil litigation
against any key employees or managers.
Copies of pensions, profit shares, deferred
compensation, retirement plans, and other
employee benefits.

50
Information about severance/termination pay, sick
leave, vacation balances, loans, credit extensions,
loan guarantees, relocation or educational
assistance, tuition, workers’ compensation,
executive compensation, fridge benefits, or other
benefits.
Annual leave, sick leave, and other forms of leave
policies.
Information on any ESOP, and schedule of grants.
Verification of observance with IRS section 409A
issued with stock options.
Summary of incentive plans or bonus plans for
management not noted in the IRS 409A
verification, and for other modes of non-cash
management compensation.
The likelihood of needing to comply with IRS
section 280G (golden parachute) regulations as
related to potential acquisitions
Three years of actuary reports.
Summary of labor conflict.
Information on any pending threatened labor
stoppage.
Information concerning past labor stoppages.

51
• General Corporate Matters Checklist
This checklist contains documents and information related to general corporate matters that
General corporate matters Owner Complete? Date of
Completion
Notes
Charter documents, such as certificate of
incorporation and bylaws.
Subsidiaries lists, including charter documents.
Certificates of good standing and tax authority (if
applicable).
Jurisdictions where the company and its
subsidiaries conduct business.
Onsite reviews with business owner.
List of current officers and directors.
List of all security holders (common, preferred,
options, warrants)
Stock option agreements and plans, including
standard documents and deviations.
Stock sale agreements.
Stock appreciation plans and related grants.
Agreements that grant restricted stock options.
Stockholder and voting agreements.
Preemptive, registrations, redemption, or co-sale
rights related to stocks.
Who are the stock owners?
Agreements restricting cash dividend payments
Warrant agreements.
Proof that securities were legally issued, including
applicable blue sky laws.
Business plan and strategic goals.
Complexity of company.
Recapitalization/restructuring documents.
Cost and process of merging with subsidiaries.
Products and services offered.
Market analysis.
Online presence.
Minutes of stockholders’ meetings.
Minutes of board of directions and board
committee meetings.

52
• Environmental Issues Checklist
This checklist contains documents and information related to environmental issues that a
seller might request from a buyer.
Environmental issues Owner Complete? Date of
Completion
Notes
Environmental records, audits and reports for
owned or leased property.
Environmental permits and licenses.
Environmental litigation, claims, investigations.
Correspondence, bulletins, and files for ocal
regulatory agencies.
Records from public agency’s investigations of the
company’s properties about environmental
concerns.
Contractual obligations to environmental issues.
Hazardous substances used in operations.
Petroleum products used to the company’s
premises (excluding vehicles)
Asbestos on the company’s property.
Any superfund exposure.
Evidence that disposal methods are in sync with
current regulations and guidelines.
Continuing environmental liabilities.

53
• Related Party Transactions Checklist
This checklist contains documents and information addressing related party transactions
that a seller might request from a buyer. These checklists strive to cover mergers and
acquisitions in general, but they may not include some documents and information that are
specific to particular fields, and others that may not apply to all deals. Buyers should review
the list and add or delete as needed.
Related party transactions Owner Complete? Date of
Completion
Notes
Has any officer, director, stockholder, or employee
had direct or indirect interest in a business that
completes or does any business with the company?
Has any officer, director, stockholder, or employee
had a direct or indirect interest in real estate,
intellectual property, personal property, etc., of the
company?
Citations and notices issued by any government
agency.
Pending or potential investigations or government
proceedings.
Reports to and communication with an agency,
including FDA, USDA, EPA, and OSHA.
Certification of compliance with regulatory
standards of the company.
Reports on costs of regulatory compliance.
Problem with regulatory compliance.
Permits and licenses necessary to perform the
operations of the company or its subsidiaries.
Information on any canceled or terminated permits
or licenses.
Exemptions from any permit or license
requirement.
LLC or partnership agreements.
Copy of all guarantees to which the company is a
party.

54
• Property Due Diligence Checklist
This checklist contains documents and information related to property ownership and
leases that a seller might request from a buyer.
Property Owner Complete? Date of
Completion
Notes
Deeds.
Deeds of trust and mortgages.
Conditional sale agreements.
Title reports.
Financing leases and sale and leaseback
agreements.
Operating leases.
Leases of real property.
Other interests in real property.
Production-related matters.
List the company’s notable subcontractors and the
total cost of the business activity and the kinds of
services or products provided.
List the company’s key suppliers and the type and
amount of products procured from each year to
date, the most recent complete fiscal years, and if
the supplier is the only source of those products.
List monthly manufacturing summaries, with
product breakdowns.
Inventory report copies.
Backlogs detailing customers, products, and the
requested vs. scheduled shipping dates.
Supplies or materials used to manufacture or
cultivate products that may face stock shortages
now or in the future.
Information about backlogs and plant operation
levels.
Service contract forms and contracts and programs
with any service providers.
Research and development, manufacturing, testing
related agreements and arrangements.
Fixed assets and locations (with physical
verification if possible).
Sales and purchases of major capital equipment
during the last three to five years.
Use permits for assets.
Operational assets.

55
• Marketing Due Diligence Checklist
This checklist contains documents and information related to marketing that a seller might
Marketing Owner Complete? Date of
Completion
Notes
Standard sales forms and literature, such price
lists, catalogs, and purchase orders.
Sales representations, agency, distributor, and
franchise agreements.
Other agreements pertaining to the company’s
marketing.
Information on markets the company pursues or
plans to pursue.
Press releases about the company, and any
partnership or joint effort where the company or a
subsidiary is involved.
Marketing costs.

56
• Competitive Landscape Due Diligence Checklist
This checklist contains documents and information related to the competitive landscape
Competitive landscape Owner Complete? Date of
Completion
Notes
The company’s key competitors, both current and
anticipated.
Current or future techniques that might make the
current manufacturing processes or technology
obsolete.
Compare the company’s products and
technologies to competitors’ products and
technologies, including their advantages and
disadvantages.

57
• Online Data Room Due Diligence Checklist
This checklist contains documents and information related to the online data room setup
Online data room Owner Complete? Date of
Completion
Notes
The target company should open up the online data
room to the buyer as early in the process as
possible (at the latest, when the letter of intent is
signed).
The data room should be organized to match the
due diligence checklist to allow cross-referencing
of documents.
The data room should have a logical structure and
a full text search function.
New documents added to the data room should be
marked and/or generate email notifications.
The data room should permit bookmarking
documents.
The buyer should be able to print (unless security
concerns preclude doing so).

58
• Disclosure Schedule Checklist
This checklist contains documents and information related to the disclosure schedule that
Disclosure schedule Owner Complete? Date of
Completion
Notes
The disclosure schedule should match what’s laid
out in the acquisition agreement.
The disclosure schedule should include all
material contracts and amendments.
All contracts in the disclosure schedule should be
added to the data room.
List all significant contracts impacted by a change
in control, as well as the time the counterparties
will agree to the changes in control.
Analyze contracts for issues based on the
acquisition.
All patents (both issued and pending) should be
listed.
Analyze potential issues with any litigation.
How will liens be deal with?
List unorthodox employment agreements and
severance arrangements.
List outstanding capital stock, options, and
warrants.
List material items in the disclosure schedule that
are not consistent with statements made previously
by or on behalf of the company.
Look for conflicting items in the disclosure
schedule.

59
CONCLUSION
Due Diligence should be regarded as an integral element of an M&A transaction. The Due
Diligence process must be structured and coordinated in such a way that the information gathered
enables the buyer to make an informed decision on whether to go through with the acquisition and
whether to manage any post-acquisition issues that have been identified. In addition, the Acquiring
Company’s management and Due Diligence team, supported by external advisors if necessary,
have to structure and focus their Due Diligence efforts on the buyer’s objectives in order to verify
that a purchase transaction can bring the desired
At the completion of the due diligence process, any issues and ongoing queries, financial risks and
potential liabilities, or indeed any concerns around future direction or expected business
opportunities should have been clearly identified, which will result in one of the following
outcomes occurring –
▪ The transaction proceeds to completion with a 'Sales and Purchase agreement'.
▪ There is no deal, and one or other of the parties 'walks away'.
▪ There are issues raised which result in further discussions, price re
negotiation(s) and/or additional legal 'niceties' (which may lead to completion
or No Deal).

60
RECOMMENDATIONS
i) PREPARE for the due diligence process significantly in advance.
ii) RESOLVE 'fixable' issues ahead of an exit.
iii) BUILD credibility by ensuring basic financials and compliance are in place.
iv) CREATE a strong management team.
v) ENSURE that any negative impact on trading is minimized.

61
LIMITATIONS
The due diligence gives a superficial understanding of the target company to the acquiring
company. As a result of which the businesses may not always succeed.
• The workforce, the competencies and the work culture remain a mystery to the acquiring
company which are quintessential to a smooth running.
• Due diligence is a process which is judgment driven and this can pose a risk.
• The process is not often smooth due to one major hurdle which is the availability of
information.
• The target company is in a constant fear that the existing customers may leave due to the
impending sale and these customers would not want any contact with them.
• The confidential nature of transactions also serves as an impediment.
The due diligence report should provide the desired level of comfort about the potential investment
and also the inherent risks involved. The report should be able to provide the acquiring company
with information such that no onerous contracts are signed which could potentially harm the
existing return on investment.

62
BIBLIOGRAPHY
• https://cleartax.in/s/due-diligence
• https://sakurabusiness.ie/the-due-diligence-process-challenges-solutions/
• https://www.smartsheet.com/due-diligence-
guide#:~:text=The%20Role%20of%20Due%20Diligence&text=The%20process%20validates%2
0the%20accuracy,know%20what%20they%20are%20buying.
• https://bathiya.com/due-diligence-documentation-in-the-indian-context/
• https://corpbiz.io/due-diligence
• https://www.perkbox.com/uk/resources/blog/everything-you-need-to-know-about-due-
diligence#:~:text=The%20origin%20of%20the%20term,US%20Securities%20Act%20of%20193
3.
• http://www.diva-portal.org/smash/get/diva2:142286/FULLTEXT01.pdf
• https://investor.hp.com/financials/sec-filings/default.aspx
• https://d18rn0p25nwr6d.cloudfront.net/CIK-0000047217/76ce0d00-2a3c-45f0-84e5-
8b579f46d228.pdf
E-book Mergers and Acquisitions Developed by Prof. Raghu Palat, on behalf of Prin. L. N.
Welingkar Institute of Management Development & Research.

Significance of due diligence as a procedure report

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