Significance of Due Diligence in Dubai UAE
“Success Comes from Delegating, Risk-Taking, and Having a Good Services.” – Sir Richard Branson
The concept of Due Diligence involves investigation, verification, and review of all the legal documents of a business. Due Diligence is a process of collecting the information of a company, understanding it and evaluating it to highlight any potential risks. These risks may be associated with the company’s legal structure, tax compliance, employees, customers, market or assets and liabilities.
Due Diligence enables the company’s buyer to investigate and mitigate any risks associated with the mergers and acquisition process. Due Diligence of a company can pinpoint the critical information about the target company and put red flags on the high-risk areas that may cause future legal problems for the buyer company.
Why Due Diligence is done?
It is often done when acquiring a business but there are many other circumstances in which due diligence might be necessary as well and is required. Due diligence defends both parties but primarily the buyer. It uncovers the liabilities which are potential and financial issues and make sure that everything is transparent instead of hidden.
What are the types of Due Diligence?
Following approaches are used for due diligence. Although these have conventionally been different, the best due diligence programs sustain a section of close collaboration as the effort in one area can often notify the checks being conducted elsewhere.
Administrative Due Diligence
Administrative Due Diligence report verifies the admin-related items such as facilities, occupancy rate, number of workstations, etc. Administrative due diligence can give clarity to the buyer about the cost of operations and general costs that will be incurred in running the business. Try out these tips to reduce your restaurant costs and let us know how they turned out for you!
Asset Due Diligence
Asset Due Diligence report provides details of a business’s fixed assets and their locations, lease agreements, schedule of sales and purchases of major capital equipment during the last 3-5 years, real estate deeds, mortgages, title policies, and use permits.
Taxes Due Diligence
Tax Due Diligence report provides details of all taxes the company is required to pay and their proper calculation. It also lays down the information relating to any tax-related case pending against the company.
HR Due Diligence(Payroll)
Human resources Due Diligence involves forming a report on the following aspects of the business:
- The number of total employees, vacancies, employees due for retirement, on probation and serving notice period.
- Salaries and bonuses paid.
- Employment documents such as employee agreement, Non-Solicitation and Non-Competition Agreement, etc.
- HR policies or procedures of the company in compliance to UAE Laws.
- Past and ongoing employee disputes, complaints of employee at labour department regarding harassment, discrimination at workplace, etc.
Intellectual Property Due Diligence
Intellectual Property Due Diligence accesses the quantity and quality of Intellectual properties owned by the company. It provides detailed information about the following:
- Patents, Copyright or trademark owned and applied by the company.
- Pending IPR infringement case by or against the company.
- Brand registration and appropriate approach to valuate the same
Legal Due Diligence
Legal due diligence analyses the
- Legal structure of the organization,
- Legal basis of a transactions and contract,
- History of litigation or complains against the organization.
Legal Due Diligence is one of the most important Due Diligence and it is recommended to get it
executed by well-experienced corporate/legal Advisor in UAE
Financial Due Diligence
Financial Due Diligence helps in define the correct financial status of the company. Financial Due Diligence reviews the audited as well as unaudited financial statements of the company along with the biggest customers accounts, fixed and variable cost analysis, schedule of inventory, debtors and creditors and appropriate analysis of the cash, profitability and debt ratio. It is also important to study the history of business.
The best and correct view of the company can be gained from the Vendors, customers, employees and other stake holders who are closely associated with the company.
Commercial due diligence takes into account the market in which a business operates, for example, linking conversations with customers, evaluation of competitors and analysis of the expectations that may be achieved through the business plan. This is envisioned to define whether the business plan is in alignment with the realities of the market.
Benefits of Having Service:
The information required to complete the financial due diligence investigation will depend upon the scope of work agreed along with the reporting capabilities of the target company. The main sources of information for the review include:
- Historical financial data (including statutory financial statements and detailed management accounts)
- Current financial data (such as year-to-date management accounts)
- Forecast financial information (including business plans, budgets and cash flow forecasts)
Depending upon the scope of the work undertaken, Horizon Biz Consultancy will provide answers to the following questions:
- Is the information provided by the target/seller reliable?
- Are the historical earnings of the target company sustainable?
- What are the potential future earnings of the target company?
- What are the possible synergies associated with the proposed acquisition?
- What are the immediate and future tax consequences of the proposed acquisition?
- Is the purchase price fair given the results of the due diligence process?
- Based on the outcome of the due diligence are there any potential deal breakers?
- Is the proposed structure of the acquisition appropriate?
- Should any warranties and guarantees be included in the legal documentation?
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