Due diligence in acquisition finance is performed by investors to verify the validity, reliability and accuracy of information provided, to ensure that there is agreement with the understanding of the current state and potential of the business. Due diligence is performed on the target company by the sponsor/investors before an acquisition financing is completed.
The individual elements of due diligence performed on a target company commonly include:
- Commercial due diligence – The competitive environment, including markets, product and customer;
- Financial due diligence – Financial records and taxation position;
- Legal due diligence – Legal status, pending and current litigation, title to assets, patents and intellectual property;
- Technical due diligence – The science and technology associated with the company and its projects; and
- Environmental due diligence – Potential liabilities associated with land quality, other environmental and health and safety issues.
The absence of any environmental liabilities in the borrower group and its compliance with environmental laws are [...] typically the subject of due diligence and often, representations and undertakings in the facility agreement.
Acquisition financing is not subject to due diligence if it is to be on a certain funds basis. The conditions to funding are limited to the completion of the transaction and customary procedural matters.