Due diligence is a key process in all kinds of business transactions, such as mergers and acquisitions (M&A), venture capital or private equity investments, as well as initial public offerings. Due diligence is also required for many financial transactions, such as loans and mortgages. It’s important that businesses perform thorough due diligence phase to avoid unpleasant surprises once the deal has been closed.
There are many kinds of due diligence, and each requires a specific approach. Due diligence can come in many forms.
Examining financial documents and records such as profit and loss reports and balance sheets. This usually includes an examination of contracts relating to tangible assets, such as vehicles and equipment. It could also involve the examination of a business’s tax situation, to determine any tax risks and opportunities.
Legal due diligence is an examination of the corporate’s consolidated legal structure, ownership arrangements and current and historical corporate documents. It is also important to take into consideration the possibility of litigation and any settlements and judgments.
The term “Regulatory Due Diligence” refers to the process of evaluating the compliance of a potential company with laws and regulations from the government. This is particularly important in industries that are heavily regulated for example, healthcare or finance. This type of due diligence simplified: unpacking VDR’s advanced features due diligence often includes an examination of the company’s licenses, permits and regulatory compliance history. It may also include a look at the company’s compliance with industry standards and best practices. In this kind of due diligence, it’s important to seek advice from experts or advisory firms.