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CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy

Sundaram Textiles Ltd plans to acquire a controlling stake in Kaveri Dyes Pvt Ltd. Before signing the definitive agreement, its team reviews Kaveri's contracts, litigation, statutory filings and tax position to identify risks that could affect price or deal terms. What is the main purpose of this exercise?

The main purpose of due diligence is to verify facts about the target and uncover hidden liabilities, so the buyer can price the deal correctly and negotiate protections such as warranties, indemnities and conditions precedent before committing to the transaction.

  1. ATo verify facts and uncover liabilities so the buyer can price the deal and negotiate protectionsCorrect
  2. BTo obtain the Tribunal's sanction for the arrangement
  3. CTo fix the swap ratio using only the market price of shares
  4. DTo replace the need for any representations and warranties in the agreement

Explanation

Due diligence is an investigative review done before closing to confirm facts and find risks. The findings feed into valuation, price adjustments, indemnities and conditions. It does not replace warranties or Tribunal approval, and it is not limited to market price.

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