What is due diligence?

Due diligence, also known as "due diligence" , is an analytical process typically carried out before the conclusion of a major transaction to allow a party to assess the company's situation and the risks associated with the transaction.

It is particularly common during:

• of the sale or purchase of a business;
• of the acquisition of shares in a company;
• from the acquisition of certain assets;
• the arrival of an investor;
• of significant funding;
• of certain reorganizations or other business transactions.

The scope of due diligence varies depending on the nature and importance of the transaction, the business activities, and the concerns of the buyer, investor, or lender.

Depending on the circumstances, it may relate to:

• the statutes and other constitutive documents as well as the regulations;
• the minutes book and corporate records;
• the shareholding structure;
• important contracts;
• financial statements and accounting documents;
• tax returns and information;
• employment contracts and certain information concerning employees;
• permits, licenses and other authorizations;
• buildings and other significant assets;
• intellectual property;
• the financing and guarantees provided;
• claims and current or potential disputes.

Due diligence helps to confirm certain information provided about the company, to identify risks that may affect the transaction, and to determine if certain issues need to be resolved before it is completed.

This verification may also be preceded or accompanied by the signing of a confidentiality agreement between the parties participating in the proposed transaction, in particular to govern the use and disclosure of confidential information communicated as part of the process.

The results of this verification may also affect the terms of the transaction, the representations and warranties requested, the commitments of the parties or, in certain circumstances, the price offered.

Complete, well-organized, and up-to-date documentation generally facilitates the process. Conversely, missing documents or irregularities can lead to additional requests and require further verification or correction.

In summary , due diligence is a common and important step in many business transactions. It allows the buyer, investor, or lender to better understand the company, verify relevant information, and assess risks before finalizing the transaction.