CONTENTS
- 1. Corporate Due Diligence | Concept

- 2. Corporate Due Diligence | Purpose

- - Assessing the Value of the Target Company
- - Identifying Assets and Liabilities
- - Reviewing Internal Controls
- 3. Corporate Due Diligence | Types

- - Financial Due Diligence
- - Legal Due Diligence
- - Operational Due Diligence
- - Human Resources Due Diligence
- 4. Corporate Due Diligence | Procedure

- - Procedure Guide
- 5. Corporate Due Diligence | Response Strategy

- - Looking for the Assistance of an Attorney?
1. Corporate Due Diligence | Concept

Corporate due diligence refers to the procedure for closely investigating and evaluating the overall matters of a target company, such as its financial condition, operational efficiency, and legal issues, in the course of a merger and acquisition (M&A) or an investment decision.
This process plays an important role in helping an acquirer or investor accurately grasp the value of the target company, identify potential risk factors in advance, and make a reasonable investment decision.
2. Corporate Due Diligence | Purpose

The purpose of corporate due diligence is to closely examine the financial condition and management systems of the target company, thereby minimizing investment risk and securing the stability of the transaction.
Assessing the Value of the Target Company
The most important factor in an M&A is how realistically and reasonably the value of the target company has been assessed.
The acquirer reviews the corporate value through financial due diligence in the early stages of the transaction.
In this process, by confirming whether the accounting data and the figures in the books match the terms of the contract, the financial transparency of the company and the reliability of its operations can be examined, and on this basis the stability and feasibility of the transaction can also be enhanced.
In particular, for companies that have grown through investment, such as technology-based companies and startups, a more comprehensive assessment of value is made by considering factors such as technological capability, market competitiveness, and the business model, in addition to simple financial figures.
Identifying Assets and Liabilities
This is the process of confirming whether the assets held by the company, such as real estate, securities, and deposits, match what actually exists.
Along with this, personal debts (private lending) not reflected in the financial statements must also be examined.
In particular, there is discussion of whether only the assets and liabilities on the financial statements will be the subject of the transaction, or whether personal debts incurred in the course of the business will also be included as the company's liabilities.
Reviewing Internal Controls
In the process of reviewing internal controls, how the assets held by the company are managed internally is examined.
In addition, it is confirmed whether various internal control rules, such as those for communication within the organization, customer management, accounting management, and account management, have been systematically established.
By sharing these internal control rules in advance, work efficiency can be improved and trust can be built between the buyer and the seller.
3. Corporate Due Diligence | Types
Corporate due diligence is classified into four types in total: financial due diligence, legal due diligence, operational due diligence, and human resources due diligence.
Financial Due Diligence
Financial due diligence is the process of reviewing the financial condition of the target company.
It analyzes financial statements, such as the income statement, the balance sheet, and the cash flow statement, and examines the structure of revenue and expenses to evaluate the financial soundness of the company.
It also accurately identifies the status of assets and liabilities and analyzes financial ratios to diagnose the overall financial condition.
By further reviewing the budget and financial forecasts, the acquirer can clearly understand the actual value of the target company and calculate an appropriate acquisition price.
▷ Review of the revenue and expense structure
▷ Identification of the status of assets and liabilities
▷ Analysis of financial ratios
▷ Review of the budget and financial forecasts
Legal Due Diligence
Legal due diligence is the process of evaluating the legal risks that the target company bears.
It confirms the status of litigation and disputes and closely reviews major contracts and agreements.
It also examines matters related to intellectual property rights, such as patents, trademarks, and copyrights, as well as compliance with various regulations, to check whether the company is properly fulfilling its legal obligations.
It also reviews employment contracts and labor-related issues, playing an important role in preventing legal problems that may arise after the acquisition.
▷ Review of contracts and agreements
▷ Intellectual property rights
▷ Regulatory and compliance situation
Operational Due Diligence
Operational due diligence is the process of evaluating the operational efficiency of the target company.
It examines the status of production and supply chain management and confirms the stability of the quality control system.
It also reviews technological capability and research and development (R&D) capacity to evaluate the company's competitiveness, and it analyzes the operating cost structure to diagnose cost efficiency.
In addition, it identifies relationships with customers and suppliers to closely examine the overall state of business operations.
On this basis, the acquirer can improve operational efficiency and establish a strategy to maximize synergy effects after the acquisition.
▷ Review of the quality control system
▷ Evaluation of technological and research and development (R&D) capacity
▷ Analysis of the operating cost structure
▷ Identification of relationships with customers and suppliers
Human Resources Due Diligence
Human resources due diligence is the process of evaluating the workforce composition and organizational culture of the target company.
In M&A involving small and medium-sized enterprises, it is conducted together with operational due diligence or, in some cases, omitted.
However, matters such as the status of key talent and management and the possibility of workforce retention or departure are usually reviewed intensively at the negotiation stage rather than at the due diligence stage.
▷ Decision-making structure of management
▷ Employee turnover and retention status
4. Corporate Due Diligence | Procedure
The corporate due diligence procedure is as follows.
② Collection and review of information
③ Data analysis and risk assessment
④ Preparation and submission of the results report
Procedure Guide
Corporate due diligence begins first by forming a dedicated team and clearly setting the purpose and scope of the due diligence
It then requests the information and documents needed from the target company and reviews them carefully in each field.
In addition, it gathers further information through interviews with management and key personnel and, if necessary, directly confirms the actual state of operations through an on-site visit.
Based on the data collected in this way, an in-depth analysis is conducted, and the major risk factors are identified so that countermeasures for them can be prepared.
Finally, the results of the due diligence are compiled into a report, which is submitted to the acquirer.
5. Corporate Due Diligence | Response Strategy

The core of corporate due diligence lies in carefully reviewing, in advance, the legal and financial risks that may arise during a merger and acquisition.
From the due diligence preparation stage, the relevant materials should be gathered systematically, and a detailed analysis should be carried out in cooperation with experts in each field.
Issues identified during due diligence are reflected in the negotiation of the transaction terms, and through this it is important to establish a stable transaction structure.
In addition, even after the acquisition is completed, a continuous management system that prepares for anticipated risks should be built so that a prompt response remains possible.
Looking for the Assistance of an Attorney?
Our firm includes many merger and acquisition attorneys with experience at large corporations and public institutions, so we handle the various legal and financial issues that may arise during corporate due diligence with professional care.
In addition, we collaborate with experts in related fields, such as accountants, tax accountants, and patent attorneys, to support thorough and systematic analysis and coordination from the due diligence stage.
If you need professional assistance with corporate due diligence, you may request a consultation with a merger and acquisition attorney at any time.
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