Due diligence is an important process in all kinds of business deals, such as mergers and acquisitions as well as private equity and venture capital investments and initial public offerings. Due diligence is also required in many financial transactions, like mortgages and loans. During the due diligence phase, it’s vital that businesses conduct thorough checks to avoid unpleasant surprises once the deal is closed.
There are numerous types of due diligence and each requires a unique approach. Some of the most commonly used types of due diligence include:
Review of financial documents and records like profit-and-loss statements and balance sheets. This may include an examination of contracts relating to tangible assets, including equipment and cars. It could also involve the examination of a business’s tax situation, to determine any tax liabilities and opportunities.
Legal due diligence involves an analysis of the company’s consolidated legal structure and ownership arrangements and the most current and old corporate documents. It’s also important that you consider any litigation that is pending or threatened and any settlements and judgments.
Regulatory due diligence involves analyzing the target company’s compliance with government regulations and laws particularly in highly regulated industries such as healthcare and finance. This type of due diligence usually includes a review of the company’s permits, licenses, and the history of regulatory compliance. Additionally, it could be a way to assess the company’s conformity to industry standards and best practices. For this type of due-diligence it is crucial to seek out the help of experts or advisory firms.