In today's environment, as a key input during the decision-making process and also as a part of general corporate governance, financial due diligence plays a vital role in the success of M&As.

There is a tremendous spurt in M&A activity in India. We have seen significant growth in the number and value of transactions. We saw, as the Grant Thornton Dealtracker Annual 2010 reveals, over 600 M&A transactions with a value exceeding $50 bn in 2010. Due diligence is defined as "A measure of prudence or assiduity as is to be properly expected from and ordinarily exercised by a reasonable and prudent man under the particular circumstance."

Due diligence is an investigation into the affairs of an entity prior to its acquisition, floatation, restructuring or other similar transactions. The objective is to ensure that prospective investors make an informed investment decision. It comes from the concept of Caveat Emptor or Buyer Beware, and it demonstrates that the buyer has done a reasonable investigation into the affairs of the company that he is acquiring.

Typically, a due diligence is undertaken after the initial terms are agreed and would be used to test some of the assumptions and also confirm the information that has been provided to the buyer during the initial discussions. Due diligence covers multiple areas such as financial, tax, legal, environmental, technical, human resource and logistics. The need for and the corresponding focus of each of these types would be established based on the target size, deal size, location and other factors.

The Analyst Magazine, Financial Due Diligence, Decision-Making Process, Corporate Governance, Price Adjustment Mechanisms, Private Equity Funds, Private Equity Investor, Corporate Acquisitions, Working Capital Management, Unusual Accounting Policies, Working Capital Elements, Debt Restructuring Schemes.