What is Due Diligence?

Due diligence is usually used to describe high-risk transactions like home purchase or business acquisitions. It’s also the act of giving a project the attention and care that it deserves whether it’s signing a contract, or reviewing a software program or deciding the perfect restaurant for your next Saturday. Due diligence is essential because we perform it regularly by weighing the benefits and risks when choosing an upcoming restaurant, downloading a brand new app, or signing for an email newsletter.

What is due diligence? In short, it’s the thorough research and investigation that parties conduct prior to the completion of a deal, to verify facts and financial details as well as to review the risks that could be involved and prepare for integration post-deal. Due diligence is an essential element of almost every M&A activity, and it’s an essential aspect of corporate governance and compliance.

Due diligence is an ongoing risk management method that must be implemented across all aspects of a firm’s operations which includes customers, other parties, and most importantly, the company itself. Due diligence is typically mandated by legal or regulatory obligations. This includes investigations of a client’s ties with sectors and countries that are sanctioned such as identifying politically exposed individuals (PEPs), evaluating the risk of a company’s exposure to money laundering and funding by terrorists, as well as verifying the integrity a business model.

Due diligence is typically conducted by companies who hire a number of experts to look into and analyze data. In the case of an M&A deal the investment company may hire a team to assess the company’s competitive positioning and market share as well as future growth prospects. An accounting firm might conduct forensic audits to find any irregularities in financial statements or tax reporting.

During due diligence, it’s critical to prioritize requests and focus on areas that are of highest concern to you and your client. A prospective investor looking to evaluate the performance merrill datasite review of a manufacturing facility may focus on its operational status and safety records, while a buying organization might put more importance on the company’s labour standards and bribery/corruption policies.

A due diligence platform that is integrated can streamline and simplify the process. This makes it easier to manage large quantities of research and documentation. These platforms provide secure, centrally managed repositories for storing, organizing and sharing information. They allow communication and collaboration between the many people involved in an initiative. They also allow task assignment tracking progress and decision making, regardless of where the individuals are across the globe. They can support automated work flow and tasks and enable document indexes and version control, as well as other functions that are compliant. In addition, they can reduce the cost and time of due diligence by making manual processes less or no longer necessary.