requires an investigation of a business in connection with any business transactions
or possible business transactions. It is often carried out by someone looking to buy a business
or someone investing in a business. This is known as buy-side diligence. Another form is conducted by a seller (or its agent) to identify the business’s potential problems when planning for sale
of the business. This is known as a sell-side diligence. The seller in a transaction has an advantage because he or she has more knowledge about the business and may not necessarily feel compelled to make additional inquiries about the daily business operations. Because of this, buy-side due diligence comes with more consequences.
Due diligence is not simply an endeavor aimed at understanding risks associated with a business. Businesses are usually bought because there is money to be made. A buyer that is buying a business that is not doing so well will want to assess the potential and unused capacity in order to understand how to produce synergies and potentialities. The discovery of these potentialities may lead a buyer to outbid rivals or choose not to share the value of synergies. Understanding risks is critical in the purchase of a business, but buyers gain a lot from diligently surveying the potential for business growth and development.
The due diligence process requires an investigation of a business in connection with a transaction or possible transaction and is often carried out by someone looking to buy a business or someone investing in a business.
The due diligence process starts at the moment an interest in the purchase of a business arises. The process continues even after an acquisition agreement is negotiated and signed. Acquisition agreements include schedule attachments that identify information about a business that was not previously recognized. This process plays a huge role in the preparation of these schedules and the negotiations between the parties. Even after a contract is signed, buyers will typically perform confirmatory diligence to make sure the representations in the agreement were accurate. Buyers will also conduct post signature due diligence when they are addressing a business’ integration and operational issues and plans.