Environmental due diligence might include checking the target company’s carbon footprint, emissions and compliance with industry environmental standards.Įnvironmental due diligence is particularly relevant if a company’s activity could create environmental risks or hazards. Recent trends in corporate social responsibility, ethical trading and sustainability have driven an increased focus on the environment. With the rollout of GDPR, investors will want to thoroughly understand how a target company stores and processes data. ![]() This could include legal ownership of assets, any legal claims made against the target company or unsettled employment disputes.ĭata protection is also covered by the legal due diligence process. ![]() Legal due diligence involves identifying and analysing potential legal risks associated with the target company. Operational due diligence covers areas such as staffing levels, the performance of senior management, pension plans, human resource activities or insurance policies held by the target company. ![]() The day-to-day running of a business can therefore be a major concern for potential investors or buyers and is investigated through operational due diligence. Operational due diligenceĪ target company’s daily operations could indicate whether it would be a good match for a merger, or whether its proposed business plan is achievable. Commercial due diligenceīefore a company makes a purchase or investment, it needs to fully understand the target company’s current and projected commercial performance.Ĭommercial due diligence helps an investor assess whether a target company is commercially viable it addresses factors such as competitor analysis, EBIT projections, the target company’s reputation, market conditions and customer satisfaction. The purchasing or investing company’s needs and interestsįinancial due diligence is perhaps the most common and well-known form of due diligence it involves an analysis of financial data, including historical statutory accounts, performance forecasts, outstanding debts, and any funding requirements.įinancial due diligence might also involve checking the valuation of major assets such as PP&E or intellectual property. Some types of due diligence are more important in some industries than in others, and the length, depth, and scope of the investigation usually depend on: The aspects of a company covered by due diligence usually fall within five broad areas: finances, commercial performance, legal compliance, operations and environmental impact.Īs there are no official guidelines for what must be covered by the due diligence process, it’s usually tailored to each specific transaction. What does the due diligence process involve?ĭue diligence is an extensive process that covers many aspects of a business – from financial statements and accounting records, to key staff members and contracts. Doing this enables an investor or purchaser to make informed investment decisions. The aim of due diligence is to check the valuation of assets and liabilities, assess the risks within a business and identify areas for further investigation. Due diligence is an investigation that should be carried out before finalising important business decisions.ĭue diligence is usually associated with large-scale investments, the restructuring of a company, or mergers and acquisitions (M&A).
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