Types of Due Diligence

Due diligence is the procedure of investigation which a business must conduct when it is contemplating making an investment or entering into a contract. Due diligence is typically performed by businesses when they are purchasing or selling goods or services, combining with another company or investing. It can also be an integral component of an impact assessment of human rights which is carried out to ensure that the company isn’t infringing the rights of other people. Due diligence is a vital step in any transaction, however it is important for companies that are entering into M&A. In reality, insufficient and inadequate investigation has been a major reason behind many of the largest M&A transactions that have failed.

There are many different kinds of due diligence, and each can be a highly complex undertaking based on the particular situation. Financial due diligence, for an example, requires examining documents of a company to ensure that the figures contained in the Confidentiality Information Memorandum are accurate. This may include comparing the latest unaudited financial statements in conjunction with comparable statements and audited financial reports.

Due diligence in real estate is a lengthy and intensive process that can be expensive. Prospective buyers must scrupulously inspect the zoning restrictions, potential liens, as well as existing structures to identify potential liability and costs. This may include interviewing key personnel in the company, analyzing the records keeping system and assessing compliance requirements. In the past, this type of work was performed in the office of the seller. However, thanks to advances in technology it is now completed online.