Due diligence is an investigational process that is carried out prior to making business decisions such as mergers, acquisitions, and investments. It involves a thorough assessment of the company’s assets and liabilities and overall financial health. It also evaluates legal risks and compliance. Incorrect or insufficient investigations are among the most common causes of M&A deal failures.
There are various kinds of due diligence and each comes with its own set of requirements. The main goal of due diligence is to VDR find any potential issues that could hinder the deal or increase the risk post-transaction. It’s crucial to have a range of resources to conduct research. This could include free search engines, paid online information services and specialist databases.
There are two major categories of due diligence: soft and hard. Hard due diligence is founded on data and numbers such as audited financial statements Profit and loss statements, balance sheets, budgets, and projections. It also includes taking a deep look at the lease agreements of a company contracts, lease agreements, and details related to real estate (deeds and mortgages, title insurance, and use permits), as well as transactions and purchase history. It is important to evaluate this information against similar companies in the industry to get a feel for the size of the business and its growth prospects.
