What is due diligence?

• The due diligence is a key process that allows investors and buyers to conduct a thorough evaluation of the business in question

In the business world, before taking decisive steps such as an investment, merger or acquisition, it is essential to have a deep understanding of the current state of the companies involved. This is where the due diligence, a key process that allows investors and buyers to carry out a thorough evaluation of the business in question.

Concept

The term due diligence It comes from English and literally translates as due diligence. In essence, it refers to a formal investigation or thorough analysis that companies must conduct before completing a major transaction, whether a merger, acquisition, or capital investment.

When a due diligence, the aim is to obtain a complete view of the financial, operational and legal status of the target company. This allows us to identify possible risks and challenges that could arise in the future, providing investors with the information necessary to make informed decisions.

Key aspects of a due diligence

This concept covers a wide range of aspects, from the financial situation to legal compliance and the technology used by the company. Some of the most important ones that are usually evaluated include:

1. Human resources and employment situation: employment contracts, organizational structure and any other personnel-related aspects are examined.
2. Accounting and financing: The company's financial records are analyzed, including its history of income, expenses and capital structure.
3. Taxation and legal resources: The company's compliance with tax and legal laws and regulations is reviewed, as well as any pending litigation or legal risk.
4. Technological issues: the company's technological infrastructure is evaluated, ensuring that it is updated and complies with security standards.

Carrying out a due diligence

The due diligence It is usually carried out with the help of specialized external consultants who work closely with the internal teams of the target company. The process begins once a letter of intent has been agreed and a confidentiality agreement has been signed.

During its course, a large amount of information is collected and reviewed and then presented in a detailed report for your review. Depending on the complexity of the operation, the process can take weeks or even months to complete.

Ultimately, the due diligence It is a crucial step in any major business operation. It provides investors and buyers with the information necessary to evaluate the potential and risks associated with a company, helping to ensure successful and well-informed transactions in the business world.