Due diligence is an investigative procedure that occurs when a business is considering signing a contract or making an investment. Due diligence is typically carried out by companies when they are purchasing or selling goods or services, combining with another company or investing. Due diligence could also be part of a right impact analysis to ensure the company is not infringing the rights of others. Due diligence is an important step in any transaction. However, it can be particularly important for businesses entering into M&A. In fact, an incomplete or incorrect investigation is one of the main culprits why many of the biggest M&A deals have failed in the past.
There are a variety of types of due diligence, and each can be a complex undertaking based on the particular situation. Financial due diligence, for an example, requires examining the company’s documents to verify that the figures included in the Confidentiality Information Memorandum are accurate. This may include reviewing audited financial statements, recent unaudited financial statements, comparing them with comparable statements, revenue projections and many more.
Due diligence on real estate is a lengthy, time-consuming process that can cost a significant amount of money. Buyers should be aware of the restrictions on zoning and existing structures, as well as company website potential cost and liens. It could also involve interviewing key employees, reviewing the company’s record keeping systems, and assessing compliance obligations. In the past, much of this work needed to be conducted in person at the location of the seller but thanks to advances in technology, a lot can be done online.
