Due Diligence

Due diligence is a crucial process that helps businesses evaluate potential risks and opportunities before entering into partnerships, mergers, or investments. It involves a thorough examination of financial, legal, and operational aspects to ensure transparency and eliminate risks.

At Break Open, we go beyond basic checks, analysing every detail to help you make informed decisions and avoid costly surprises. Our goal is to provide a clear, comprehensive understanding of any potential liabilities or benefits, safeguarding your business and ensuring a successful transaction.

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Why Due Diligence?

It ensures that buyers can make well-informed decisions and avoid unexpected issues that may arise during the final stages of a deal.

This process is especially crucial in the context of caveat emptor—or "let the buyer beware"—where the buyer is responsible for ensuring that the goods or services they are acquiring are defect-free and meet expectations. By conducting due diligence, buyers can confirm that the transaction aligns with their expectations and avoid any hidden liabilities or surprises.

Due Diligence process

The due diligence process typically involves the buyer posing questions to the target business, which must respond with verifiable proof to support their answers. The business being acquired is legally required to provide accurate and truthful information. This back-and-forth Q&A process helps clarify any points that may require further explanation before the transaction proceeds.

Due diligence usually takes place after both parties have reached a preliminary agreement or identified potential benefits in a deal but prior to signing any binding contracts. This ensures that all critical information is thoroughly reviewed and any uncertainties are addressed before finalizing the transaction.

What we cover?

Legal due diligence

The legal due diligence process examines a company's legal standing and its compliance with relevant laws and regulations. This typically involves a thorough review of corporate filings, contracts, and other legal documents to assess potential legal risks.
This step is critical, as it helps investors or buyers evaluate whether the company can continue to operate smoothly after the acquisition. All information presented, particularly in the company's annual report, must be accurate. Directors could face legal consequences, including criminal sanctions, if any false or misleading statements are made.
Accuracy in the annual report is especially crucial for financial data, though it applies to all content. As a public document, the report is subject to legal scrutiny, and inaccuracies could lead to legal actions against the company’s directors. Therefore, ensuring that the information is both current and accurate is essential to protect the directors and ensure the company's legal compliance.

Operation and structure

The term "operational" encompasses all aspects of a company’s day-to-day activities, including its procedures, location, inventory management, supplier relationships, organizational structure, staffing levels and expertise, customer relations, and insurance coverage.

In essence, it covers everything a business does to function effectively. Operational details provide critical insights into how a company is organized and operates. This information is vital for potential investors or partners, as it gives them a clear understanding of the company’s internal workings and efficiency.

These details are also key to ensuring smooth operations, maintaining customer satisfaction, and identifying potential areas of risk or liability. By fully understanding the company’s operational processes, businesses are better equipped to address challenges and minimize legal or financial risks.

Reputational due diligence

Reputational due diligence focuses on evaluating a company's public image and the potential risks associated with how it is perceived by customers, partners, and the general market. This process involves analyzing media coverage, customer reviews, industry reputation, legal records, and even social media presence to uncover any potential red flags that could damage a company’s standing or future prospects.

At Break Open, we understand the critical role that reputation plays in a company's success. We assist businesses by conducting comprehensive reputational assessments, which help to uncover any past controversies, legal disputes, negative public sentiment, or ethical concerns that could harm their image. Our team uses a blend of legal expertise, cyber intelligence, and thorough investigations to give you a clear picture of any reputational risks before entering into a deal or partnership.

By identifying these issues early, Break Open helps businesses take proactive measures to reduce risks, enhance their brand’s integrity, and maintain the trust of stakeholders. Whether you're investing in a new company or entering a joint venture, our reputational due diligence ensures that you move forward with confidence and a full understanding of any potential reputational liabilities.

Financial due diligence

Financial due diligence involves a detailed investigation of a company's financial performance to assess its value and investment potential. This process typically includes a thorough review of the company’s accounting records, financial statements, tax returns, and related documents. By analyzing these, businesses can get a full picture of the company's financial health, including its profits, losses, debts, and assets.

At Break Open, we take a comprehensive approach to financial due diligence, ensuring all financial elements are thoroughly reviewed. We assess critical aspects such as debts, profit/loss ledgers, and the financial status of any wholly-owned subsidiaries. It's also important to analyze total assets, liabilities, and long-term debt levels to get a clear understanding of any risks.

One interesting fact is that nearly 50% of mergers and acquisitions fail due to inadequate financial due diligence, often leading to unforeseen liabilities and a misjudgment of company value

To avoid this, Break Open works closely with buyers, accountants, and solicitors to review financial records and assess risks. Our expertise ensures that buyers have access to a company’s latest financial accounts and reports through trusted sources like Companies House, offering clear insight into assets, liabilities, and future prospects.

With our in-depth analysis, we provide key insights that help negotiate the terms of a sale contract, including the price, and ensure that clients are fully aware of any financial risks before proceeding with the deal.