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Types of Due Diligence

Due diligence is the process of research that a business undertakes when it is contemplating making an investment or entering into an agreement. Due diligence is typically carried out by companies when they are buying or selling goods or services, joining with a competitor or investing. Due diligence is also an element of a human right impact analysis to ensure the company isn’t infringing the rights of others. Due diligence is an essential element in any transaction. However it can be especially crucial for companies that are entering into M&A. In reality, a lack of due diligence or inadequate investigations have been a major reason behind many of the biggest M&A transactions that have failed.

Due diligence may take a variety forms, and based on the specific circumstances each one can be extremely complicated. Financial due diligence, as an example, is the process of examining a company’s documents to ensure that the figures included in the Confidentiality Information Memorandum are accurate. This could include looking at audited financial statements, the most recent non-audited financial reports, comparable statements, revenue projections, and much more.

Due diligence in real estate is a lengthy and laborious process that can be expensive. Buyers should be aware of zoning restrictions and existing structures as well as possible cost and liens. It could also involve interviewing key employees, reviewing the company’s records keeping systems, and assessing compliance obligations. In the past, much of this work had to be done face-to-face at the seller’s location, however, with advances in technology, a lot of it can be completed online.

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