Understanding DUE DILIGENCE

Due Diligence is a term used to describe the process of auditing a financial transaction. It includes an examination of the finances, operations, taxation, employment and activities of the company being bought or sold.

It is usually carried out by a team of experts including lawyers, accountants, financial consultants and transaction specialists. This is a crucial step for private equity investors (/en/blog/quest-what-private-equity-pe), as it enables them to assess the risks associated with the acquisition and determine the company's value.

Due diligence is highly regulated, and must be carried out as extensively as possible to guarantee the integrity and accuracy of the information obtained. Analysts must examine the company's financial statements, contracts, assets and liabilities, as well as written and oral information relating to the company and its current market.

The information obtained may lead to negotiation of the transaction and signature of a contract, or may reveal risks too great for the investment to proceed.