Comprehensive due diligence is essential when acquiring a company - but it is also very cost-intensive. It is also cost-sensitive for potential investors, as it always represents a significant investment with an uncertain outcome.
To reduce the cost risk, a full due diligence can be preceded by a so-called "red flag due diligence". A Red Flag Due Diligence enables the buyer to get a first overview of the object of purchase.
This enables him to identify potential deal breakers or obstacles to the further M&A process. Such obstacles include, for example, incorrectly valued assets or facilities, financial difficulties of the target company or a strategy that is not realistic or targeted.
If you compare a company to a landscape of streets, villages and towns, due diligence involves looking into almost every house and driving down every street - in red flag due diligence, on the other hand, experts initially examine only the most important transport links and a few central buildings.