Due diligence is a crucial process in all kinds of business deals, such as mergers and acquisitions and private equity, venture capital investments and initial public offerings. Additionally, it’s a requirement for various financial transactions like loans and mortgages. It is essential that companies conduct thorough checks during the due diligence phase to avoid unpleasant surprises once the deal is closed.
There are many kinds of due diligence and each one requires a different method of conducting it. Due diligence can take many forms.
An examination of financial documents and records like balance sheets and profit and loss statements. This usually involves an examination of contracts related to tangible assets such as vehicles and equipment. It could also involve an examination of the company’s tax status in order to identify potential tax obligations and opportunities.
Legal due diligence includes an examination of the corporate’s consolidated legal structure, ownership arrangements, as well as current and past corporate documents. It is important to take into account pending and potential litigation and any settlements or judgments.
Regulatory due diligence is the process of assessing a target company’s compliance to the laws and regulations of the government. This is particularly important in sectors that are highly regulated for example, healthcare or finance. This kind of due diligence typically involves an examination of the company’s licenses, permits, and regulatory compliance history. It may be accompanied by a review of the company’s compliance with industry standards as well as best practices. For this kind of due-diligence, it’s important to seek out the help of experts or advisory firms.