Types of Due Diligence

Due diligence is an essential process in many types business transactions, including mergers and acquisitions and private equity, venture capital investment and initial public offerings. In addition, it’s also required for many financial transactions such as loans and mortgages. In the process of due diligence it is essential that companies perform thorough checks to avoid unpleasant surprises once the deal has been concluded.

There are a variety of kinds of due diligence, and each requires a different approach. Due diligence can take a variety of forms.

Review of financial documents and records, such as profit-and-loss reports and balance sheets. This may include an examination of contracts relating to tangible assets like cars and equipment. It may also include the examination of a business’s tax position, in order to determine any tax risks and opportunities.

Legal due diligence entails an examination of the consolidated legal structures, ownership arrangements, and current and historic corporate documents. It’s also important that you consider any litigation pending or imminent and any settlements or judgments.

Regulatory due diligence is the process of examining the target company’s compliance with government regulations and laws, particularly in heavily regulated industries like healthcare and finance. This type of due diligence usually includes a review of the company’s licenses, permits and regulatory compliance history. It could also include a check of the company’s compliance with industry standards as well as best practices. It’s often important to enlist experts or advisory firms to conduct this type of due diligence.

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