How to choose the company that will carry out due diligence? Key selection criteria

Due Diligence is a complicated investment process based on which the investor makes difficult decisions of great strategic and business significance.  That is why at the beginning of the process, it is crucial to properly choose the entity that will be entrusted with the task. The selection of the company for Due Diligence requires a detailed approach and analyzing several aspects. Of key importance here will be the company’s experience with such projects as well as niche expert knowledge in the analysis, resulting from familiarity with the industry or the business model.

When choosing the company, one should pay attention to:

• verification of the experience and specialty of the team of experts – when selecting the company, it is important to check whether it has experience in working with transactions of similar type e.g., mergers and acquisitions and whether it knows the specific nature of a particular industry or sector. Additionally, it would be worthwhile to make sure that the company has a sufficient number of experts.
• opinions and recommendations – the company’s reputation is a crucial indicator of the service quality; that is why it is important to learn about the opinions and experience of other customers. In this case, references from other companies might prove useful.
• the scope of offered services – depending on the type of the carried-out transaction, it is of key importance to verify whether the company is able to provide comprehensive Due Diligence that will cover all the key aspects of the transaction. Depending on the type and size of the transaction, Due Diligence can be conducted by business, legal, financial or tax advisors, IT specialists or technical experts. When the company has consultants from various fields, it facilitates and speeds up the whole process of the analysis.
• communication with the company – Due Diligence might require extensive communication, especially when the transaction is dynamic. Thus, it is important that the company is available in due time and able to provide regular progress reports to inform about the results.
• used technology – advanced technology serves a crucial role in the process of Due Diligence because it allows for a deeper analysis, faster processing of information and better data protection. By choosing a company that uses modern technological solutions, one can greatly influence the accuracy of the results and streamline the entire process.
• service cost – this is one of the most important aspects when choosing the company. One should pay attention to the transparency of the valuation in order to avoid additional hidden costs.

After selection of the company that will conduct due diligence, all provisions should be acknowledged in the agreement thoroughly and in detail. The said agreement must precisely specify the principles of cooperation and guarantee independence and full professionalism of the entity that will carry out the analysis.

Autor: Sylwia Zatorska – Accountant  at the MDDP Outsourcing office in Warsaw

Due Diligence investments accounting costs technology transparency valuation