Provided by Leslie Cummins and Peter Tropper of the
International Finance Corporation
In this section you will learn more about:
Objective of Due Diligence
- Determine whether the Fund should make the investment, including any conditions. At this stage, the Fund Manager performs a detailed analysis of the financial and business operations of the Investee and may call on external experts to assist in the review and evaluation
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Issues to Consider
- Market Opportunity
- Review of industry, sector, and relevant trends
- Key business drivers
- Comparative advantages of the target (market share, brand, cost efficiencies, etc.)
- Regulatory trends
- Competition
- Market expert opinions
- Business Model
- Business model and product lines
- Customer/client commentary and references
- Manufacturing/service processes
- Distribution
- Client mix and concentration
- Product development
- Company Operations
- Ownership
- Key managers and their backgrounds (with independent references)
- Relationships to parent or other industrial group
- Corporate governance practices
- Organizational structure
- Employee retention and labor issues
- Management information systems
- Internal controls
- Financial Information
- Financial and operational data, both historical and projected, including audits and management letters
- Source and sustainability of margins, collection and maintenance of financial information
- Legal, Regulatory, and Environmental Issues
- Environmental, health or safety issues
- Intellectual property
- Compliance with relevant statutes and regulations
- Constitutive documents
- Pending risks and litigation
- Proposed Investment
- Use of investment proceeds
- Other parties involved in the proposed transaction and their roles
- Proposed deal structure
- Expected exits
- Risks
- Alternative scenarios
- Key business risks (technology shift, market shift, regulatory changes, financial structure, etc).
- Conclude negotiations or isolate remaining issues to be decided.
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Documents
- Download this Suggested Fund Manager Due Diligence Checklist .
- Confidentiality agreement
- Draft Term Sheet
- Correspondence with proposed Investee
- Data, reports, etc. collected during the due diligence process should be recorded within work flow processes
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