Due diligence is a systematic examination of a business, ahead of an event such as a merger or acquisition, partnership, investment, etc.
It identifies issues so they can be tackled early on, it can help you establish the true value or cost of a business transaction and the right information can contribute to how the terms of your agreement are drafted. There are 3 main types of categories:
- legal due diligence
- financial due diligence
- commercial due diligence
Commercial due diligence considers the market in which a business sits, for example by having conversions with customers, assessing competitors and creating a fuller analysis of the assumptions that lie behind the business plan. All of this is intended to determine whether the business plan stands up to the realities of the market.
Source: ICAEW
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