Home › Different Categories of Due Diligence

The due diligence stage is an essential element in the process of buying an insurance agency. Since it allows you to assess and evaluate the value of the business, the due diligence period helps you determine whether you should proceed with the purchase or otherwise. Unless the due diligence stage is completed, the transaction is typically conditional. 


What Are the Different Categories of Due Diligence?

Legal Due Diligence

This type of due diligence process requires you to look into organizational documents such as material contracts and leases. It essentially seeks to verify whether the seller is the owner of the assets or business that they propose to sell. Furthermore, conducting legal due diligence allows you to determine whether the agency has any mortgages, liens, or other claims against the assets. It’s important to note that the areas subject to due diligence aren’t limited to the agency’s physical assets because it also reviews the seller’s intellectual property. For instance, you should find out about the licenses they hold and whether or not they’re transferable. You’ll have to work with a specialist who can help you look into critical areas of risk. 

Business Due Diligence

Alternatively, business due diligence requires you to review and understand the agency’s employee relations, banking relations, customer and supplier contacts, the status of deliverables, and work in progress. Although the buyer usually conducts these searches, the seller may also conduct their own business due diligence on the buyer if the seller is receiving shares as part of the purchase price or taking back debt. Moreover, this due diligence period provides you with the information you need to help you with the negotiation process of the main agreement. Business due diligence produces results that may cause you to request that specific warranties and specifications be set out in the agreement. Additionally, you may also ask the seller to give additional guarantees. 


Buying an Insurance Agency?

At Energia Consulting Partners, LLC, we’re here to assist you with the acquisition of your insurance agency. Contact us today to make an appointment.