Due diligence is an investigational process that takes place when a company is contemplating entering into a contract or making an investment. Typically, businesses conduct due diligence when buying or selling goods and services, or when merging or acquiring another business. It can also be an integral component of an impact assessment of human rights, which is conducted to ensure that a business is not violating the rights of another. Due diligence is a vital aspect of any transaction, but it can be especially essential for companies who are involved in M&A. In fact, a lack of or inadequate investigation is one of the primary reasons even some of the biggest M&A deals have failed in the past.
There are various kinds of due diligence, and each type can be a highly complex undertaking based on the particular situation. Financial due diligence, for an example, involves looking through the company’s records to ensure that the figures in the Confidentiality Information Memorandum are accurate. This can include examining recent unaudited statements and comparing them with comparable statements and audited financial statements.
Due diligence in real estate is a time-consuming and intensive process that can be expensive. Prospective buyers must scrupulously inspect the zoning restrictions, possible lien holders, and current structures to discover potential costs and liabilities. It could also involve interviewing key employees, analyzing the company’s record keeping systems and assessing compliance obligations. In the past, much of this work needed to be completed face-to-face at the location of the seller, however, with advances in technology, much of it can be done online.