Investment Due Diligence in Thailand

Due diligence is the detailed investigation that a potential investor carries out on a target business after successfully completing preliminary negotiations with its owner.

Notwithstanding, the differences in scope due to different investing scenarios, there are typically four types of due diligence. These include commercial, legal, financial, and tax checks.

As a result of the due diligence, the investor may come to a different or more nuanced understanding of the opportunity and seek to renegotiate the initially agreed terms or even decide to decline the investment.

Due diligence commonly results in the investor negotiating additional, more detailed terms and conditions in its final agreement with the business's owner.

Due diligence begins after an investment has been initiated via a letter of intent, or term sheet. At this point, a team is assembled to conduct the exercise with relevant rules of engagement agreed between both parties.

Investment due diligence is usually taken over a period of between 30 and 60 days.

In the end, a report will be compiled and presented to the investor with recommendations of potential additional terms and conditions to be required in the transaction.

Investment due diligence does not have a strict formulation; it should be designed to address the specific circumstances. The matters which will be investigated depend on the structure of the contemplated transaction - what the investor will receive in exchange for its investment. If the transaction is structured so that certain assets, liabilities or segments of the business are excluded, there usually is no reason for the investigation to cover them.

1. Commercial due diligence covers the target business’s market positioning and market share, including drivers and prospects. It seeks to obtain an independent perspective on the sales forecast as the most critical component of the target’s business plan.

2. Legal due diligence covers a wide scope of legal matters, including proper incorporation and ownership, contractual obligations, ownership of assets, compliance and litigation. It seeks to confirm the validity of the rights being acquired by the investor and the absence of legal risks which could undermine the value of the investment.

3. Financial due diligence has a wider perspective because it seeks to both:
- Validate the investor’s valuation assumptions by looking at historical performance, if available, and concluding whether it is consistent with projections, and
- Identify financial uncertainties and exposures which could disrupt the business, or result in additional costs to the investor.

4. Tax due diligence could be viewed as an extension of the financial due diligence, where the focus is on identifying potential additional tax liabilities arising from non-compliance or errors.

Further types of investment due diligence are technical, environmental and regulatory, performed when the impact of these areas on the business is significant. Depending on the situation, the due diligence may need to address very specific and narrowly defined topics, as long as they are factors for the valuation and assessment of the risks of the investment opportunity.

• The investor and the investee agree on the terms of access to information about the target business, including confidentiality undertakings, scope, and limitations of the investigation, communication protocol and points of contact.

• A timeline is established including deadlines for receiving the information, issuing the investment due diligence report (s) and returning to the negotiating table.

• Information requesting and receiving.

• Project / Site visits at the target business by the due diligence team.

• Internal communication and discussion of findings.

• Preparation of one or more investment due diligence reports.

• Discussion of the report with the investor.

• Our lawyers will put the investment due diligence findings on the table in order to negotiate the changes or additions to the terms of the transaction.