Self-diagnosis and due diligence

Last modified:

Friday 28 July 2017

The economic analysis of the company aims to:

  • identify the strengths and weaknesses of the company chosen considering its environment,

  • establish the company evaluation and the arguments which will be used during the negotiation.

  • specify the priority actions required by making use of any strengths and finding solutions to any weaknesses,

  • verify the coherence between the coveted company and the buyer's personal plans.

During the sale of a company, the seller's interests often oppose those of the buyer, particularly when it comes to agreeing on a sale price.

Regardless of the price determination process, you must obtain a clear vision of the entity or activities being taken over. It would be unreasonable to restrict the evaluation to a simple examination of the accounts...

Due diligence

Generally, the buyer will ask a specialist to perform "due diligence".  This approach consists of creating an inventory of the company's assets, as well as all the risks and uncertainties which it faces or could face.  Examples are the existence of bad debts, over-valued stocks or assets, ongoing disputes, etc.

It is also essential to analyse the customer portfolio, customer and supplier contracts, the composition of the workforce and salary conditions, the company's key financial and operational ratios compared with its sector or comparable companies, etc.

The takeover of an activity or a company presents obvious risks. It is important to look before you buy and to analyse the target objectively and realistically.

It is in the buyer's interests to carry out "due diligence" because any evaluation error may have serious financial consequences.

Self-diagnosis of the company

To help you with this, we suggest completing this 40-point checklist (FR) to allow you to perform an initial diagnosis of the company. For each point, put yourself in the shoes of the buyer or the seller and select one of the responses. Then compare your responses as a buyer and a seller.

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