Due Diligence

What It Means

Due Diligence refers to the detailed analysis and investigation that a person or company undertakes before engaging in a contract or agreement with another party.

Why It’s Important

During an Acquisition, Buyers will request a period of time to conduct Due Diligence and perform a thorough evaluation of the company under consideration for purchase. Due Diligence can involve a wide range of topics, depending on the size and complexity of the company, the purchase price, and the sophistication of the Buyer. If the Acquisition will involve debt as a source of funding, the lender will likely conduct their own Due Diligence as part of their underwriting process.

Due Diligence represents the last opportunity for a Buyer to verify their assumptions and uncover hidden risks. Buyers will have a checklist outlining the items that they would like to confirm. The process of responding to dozens of Buyer questions and requests can be incredibly time consuming for Sellers and in some cases can even distract the Seller away from day to day management of the business.

The timeline and expectations for Due Diligence should be clearly outlined in the Buyer’s Letter of Intent. It is important for Sellers or their advisors to set expectations and manage the Buyers through the Due Diligence process, ensuring that the Buyers are progressing through their Due Diligence and that the deal stays on track for the planned closing.

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Due Diligence

What It Means

Why It’s Important

Related Terms

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