The due diligence process provides an opportunity to make sure the growth plans are strong. This is crucial in a high-multiple environment where private equity investors have to show significant growth in order to achieve their internal rate of return hurdle rates.

Smart private equity firms double-check information in a confidential information memorandum (CIM) with specific commercial diligence requests. This allows them to confirm what is contained in the CIM with additional information that will aid in implementing their Day One Growth Strategy.

Legal due diligence is an essential element of this, ensuring that the purchase won’t expose the new owner to unexpected liabilities. The legal team will review company https://webdataplace.com/what-do-you-expect-in-technical-due-diligence/ structure, ownership information and stock information in order to identify potential issues.

Other areas of commercial due diligence include looking at the physical assets like facilities, equipment and inventory. This will verify that the assets are in good condition and highlight any opportunities to improve efficiency or increase utilization of assets. The team will also study the documentation on human resources in order to understand the company’s leadership human capital, org charts, as well as the roles. They will also review the treasury records to confirm the amount of shares that have been purchased. They will also look for rights and debt equity agreements, or securities that may grant current owners the right to preemptively claim. The team will also study the legal agreements and contracts of a firm to determine any obstacles that could prevent future growth or M&A.