Nongalo Financial Services CC (“NFS”)

Due Diligence

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A Due Dilligence is normally conducted by specialists, such as ourselves, whenever there is a proposed acquisition or merger. It is best performed as early as possible in the negotiations so that, if necessary, the terms of the agreement can be modified in the light of discovery (for instance, by the inclusion of various indemnities where risks appear to be more than minor). Unfortunately, however, it is often made a suspensive condition of the agreement. There are many aspects to due diligence which looks more at risks related to the future than does a financial audit which looks mostly to the past.

Amongst the areas examined are:

• The principal reasons underlying the proposed venture
• The reasonableness of assumptions made by the negotiating parties
• The accuracy and relevance of the past financial audits when related to the proposed new structure.
• The effect that the change will have on the supply of goods and services inwards
• The effect that the change will have on sales
• The compatibility of the two organizations
• The risk of litigation pending
• Taxation risks
• Staff related risks
• Intellectual property risks
• Environmental risks
• Ongoing sustainability of agreements or contracts previously signed by the parties
• Because of the diversity of areas to be examined and the forward looking nature of the work, Due Dilligence has, with some justification, been described as an art rather than a procedure. Although inherently costly, a properly conducted Due Diligence will often identify otherwise unseen and often disastrous risks relating to a proposed takeover or merger.