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Due diligence
Practical Law UK Glossary 5-107-6162 (Approx. 6 pages)
Glossary
Due diligence
The process by which a buyer of or an investor in a company, asset or business investigates the target by reviewing legal, financial and commercial information relating to it, to:
- Support its valuation.
- Establish whether there are matters on which it requires further information.
- Establish whether there are issues which require a renegotiation of the price or some form of contractual protection.
In the acquisition of a business, reports from accountants and legal advisers are usually prepared to record the findings of the legal and financial due diligence process. The due diligence process is supported by warranties and indemnities in the acquisition agreement.
In the context of the purchase of a debt or securities (for example, a transaction in the secondary market), the due diligence process is undertaken by the incoming financier, who will investigate the business, financial condition and creditworthiness of each relevant obligor and the terms of the underlying finance documents.