Due diligence is a vital process in all kinds of business transactions, including mergers and acquisitions (M&A) and private equity or venture capital investments and initial public offerings. Due diligence is also required for many financial transactions, including loans and mortgages. During the due diligence phase, it’s vital that businesses conduct thorough checks to avoid unpleasant surprises after the deal has been closed.
However, there are many types of due diligence, and each requires different approaches. Some of the most common types of due diligence are:
An examination of financial records and documents, such as balance sheets and profit-and-loss statements. In most cases, this will involve the review of contracts related to tangible assets, such as vehicles and equipment. It may also involve an examination of the company’s tax situation, taking note of any potential tax liabilities or opportunities.
Legal due diligence is reviewing the firm’s consolidated legal structures, ownership arrangements, as well as current and old corporate documents. It’s also important to consider any litigation pending or imminent, as well as any settlements and judgments.
A process of regulatory due diligence is the process of evaluating the compliance of a company’s target to federal laws and regulations. This is especially important in industries that are heavily regulated like savvysocialimpressions.com finance or healthcare. This kind of due diligence usually includes a review of the company’s permits, licenses, and the history of regulatory compliance. In addition, it might also examine the company’s compliance to industry standards and best practices. In this kind of due diligence, it’s important to seek out the help of experts or advisory firms.