Reply To: DD by Industry


Korath Wright

In my opinion, the required level of Due Diligence depends on the risks involved. Higher risk transactions may require more Due Diligence. These risks may be inherent to the transaction or specific to the transaction, while some industries are naturally higher risk than others.

Risks that are inherent to the transaction include those relating to transaction type, such as an R&D merger carrying higher risks of impacts from key staff departures.

Risks specific to a transaction include those related to the individual company situations, how specific market conditions impact the deal, or other environmental impacts that are specific to a transaction. These also include accounting for the individual investors appetite for risk.

Industries that have higher risks may be those that engage in operating activities which could incur more material liabilities; such as those with safety challenges, or that involve high levels of regulated activities, or are exposed to more significant amounts of litigation. Financing and investing activities can be risky, depending on their historical and current performance, such as tax liabilities from a previous tax position taken. Financing and investing risks exist across industries, however can be more prevalent in some industries. For example, blockchain ICOs (initial coin offerings) which started offerings in 2014 and peaked in 2017, skirted regulation and had significantly higher risk of investment and financing liability exposures, which results in increased need for DD.

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