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Due diligence is an important investigation tool used to determine the risks associated with contracts and transactions, helping in making informed decisions. It requires a thorough review of every aspect of a company or investment from its legal, financial and market performance to its past. This helps parties anticipate potential liabilities and negotiate terms with confidence.
The scope of due diligence can vary based on the transaction type and business model however, it is generally conducted prior to an acquisition or merger. Equity research analysts, fund manager broker-dealers, individual investors or fund managers are able to conduct due diligence. Private firms as well as government agencies are required to conduct due diligence when investing.
This may include reviewing human resources by assessing employee compensation and retention strategies. It can also examine the quality, condition and ownership of assets like inventory, equipment and real estate assets.
It is important to use the correct tools when conducting a thorough due diligence. They can include cloud-based software solutions that offer secure and centralized repositories to organize, store, and sharing due diligence documentation. They can also incorporate features like audit trails and access control, version control management, and document indexing. Additionally, they can aid collaboration and communication across teams and stakeholder groups regardless of the user’s geographic location.