A Guide to the Different Types of Due Diligence

25 July 2017 Amelia Henderson Best practices

What is due diligence?

Due diligence is the process of being able to evaluate and understand a potential acquisition, partner or buyer. In the business environment, due diligence enables organisations to investigate a prospective investment in order to gather as much detail as possible. The information is then used to determine the attractiveness of the investment. The process of due diligence means that a business can establish if a transaction is worthwhile.

The different types of due diligence

There are multiple types of due diligence that provide businesses with the confidence and knowledge to get exactly what they want out of a prospective deal. Certain types of due diligence will enable companies to spot issues before they cause harm, whilst others provide valuable information on the true cost of a business transaction. Due diligence is the process of gaining knowledge to empower a business to make smart choices.

The most effective due diligence processes maintain close co-operation across the main categories which include financial, commercial, M&A, customer and vendor due diligence. This integrated approach to due diligence pays dividends as information gathered from one area can be valuable to another.

Buying a company due diligence

A common goal of due diligence is to determine whether there is an attractive return on investment of a potential company acquisition. When conducting due diligence on a potential acquisition a business would want to determine whether or not the company in question is secure financially and legally. This due diligence program aims to gather as much important information about a business as possible to make a well-informed, confident decision when buying a business.

Our buying a company due diligence guide provides an outline to the process and a useful checklist to follow.

M&A due diligence

Merger and acquisition (M&A) due diligence is conducted when two businesses intend to merge into one, or when one company is considering whether to acquire another. M&A due diligence is undertaken to help a buyer to determine whether to proceed with the proposed deal. The buyer can therefore adjust their expectation once they understand to a greater extend how an integration or acquisition will play out. M&A due diligence helps the buyer to understand potential risks, and also plan for the integration of target company with greater clarity.

Our guide to M&A due diligence outlines the benefits, and provides a useful checklist.

Financial due diligence

Financial due diligence is the procedure that a prospective buyer undertakes in order to evaluate the financial stability and health of the assets up for sale. The company’s financial data is scrutinised, and any mitigating areas that could pose a risk are identified. The key benefit of financial due diligence is that the buyer gains knowledge of the historical and actual financial performance of a company, alongside forecasting it’s future financials.

Our guide to financial due diligence lists the key benefits, as well as a checklist and information on the process.

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Customer due diligence

When forming new business relationships, companies will often want establish if a prospective customer is involved with illegal practices such as money laundering, or funding terrorist organisations. In this scenario the process of customer due diligence greatly reduces the risk of conducting business with a new customer. The level of customer due diligence required will vary depending on the size, type of client and the business relationship it has with the customer.

Our guide to customer due diligence outlines the main benefits, along with a checklist and useful information on the process.

Commercial due diligence

Commercial due diligence is the process that a private equity firm undertakes when gauging a company’s commercial potential. Commercial due diligence provides a full overview of the target’s internal and external environment, unlike financial due diligence which focuses solely on the financial health of a company.

Our guide to commercial due diligence lists the main benefits, as well as useful information on the process and a handy checklist.

Vendor due diligence

Vendor due diligence is the process that a private business undertakes when it is either being sold or when it’s assets are up for sale. Vendor due diligence is conducted at the request of the seller, and usually it is managed by an independent third-party who will then report on the financial stability of the company in review which is available to potential investors.

Our guide to vendor due diligence outlines the main benefits, along with a checklist and useful information on the process.

How DueDil can help

The richest source of company information

DueDil provides businesses with comprehensive information required for conducting due diligence checks. This includes firmographic and financial data, ownership information including beneficial owners and shareholders, as well as the wider corporate structure.

Businesses can use this information to review third-party financials, debts and assets to develop a clear understanding the company’s background and determine the level of risk involved in working with the organisation.

Detailed credit reports provide detailed a detailed history, including benchmarks against similar companies, CCJs and Gazette notices filed against the company.

An intuitive user interface

DueDil provides its customers with an intuitive and easy-to-navigate UI that makes it easy to access and understand our rich company data.

Business can create lists of their customers or suppliers, and monitor these companies for important changes and company events, including new credit scores, directorship changes and newly issued court judgements. Users can receive optional weekly alert emails detailing all recent changes.

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