Due Diligence


Due diligence refers to an investigation of the business to confirm all facts, or an authentication of the information provided before signing a contract. This includes reviewing all financial records, plus anything else deemed material

Due diligence is the process of research and analysis that is performed before a potential investment, acquisition, bank loan or business partnership, to enable the determination of any major issues or potential issues in the subject of the due diligence. The prospective investor or acquirer must obtain all the required information to make sure that he makes a sensible investment rather than a costly mistake!

Investors carry out due diligence before buying a security from a company. Due diligence can be performed for mergers and acquisitions, researching hedge funds and startup investments.

What are the different types of Due Diligence?

  • Financial Due Diligence: It includes a review and analysis of the Investees' or seller’s tax returns, fin racial statements, financial trends and accounting policies. It basically serves as the starting point for the due diligence process
  • Business Due Diligence: It includes the review and analysis of strategic plans and business plans, markets and competition, and customers and products It serves as a guidance in identifying any change that the industry is about to undergo and the target customer base of the seller, hence showcasing risk involved in the process prior to closing the transaction.
  • Legal Due Diligence: It includes a thorough review and analysis of contracts and agreements and corporate documents; pending, ongoing and potential litigation; legal and regulatory compliance and environmental factors.
  • Tax due diligence: It includes managing the tax risk at the time when a company goes into a merger, acquires a business or disposes off a non-core business. It is important to focus on risks and opportunities (including quantifications) while providing social security, direct and indirect taxes due diligence, and corporate tax.
  • Human Resources Due Diligence: It includes looking at the employee benefits, management and personnel, organization's structure, and labor matters.
  • Operations Due Diligence: It includes the review and analysis of the investees or seller’s fixed assets and facilities, technology, insurance coverage and real estate. This step also helps in looking at any significant operational risk that might affect executing the deal or pricing.