Due Diligence
In order to ensure a successful acquisition, the buyer may, especially in non-minor transactions, carry out a so-called due diligence process with respect to the target company or business. The meaning of the due diligence process is to give a true and fair view of the company or business being bought and the responsibilities and risks involved that may have financial or legal importance to the buyer.
The scope of the due diligence investigation is defined by the target company and the time available for the inspection. In a due diligence investigation the target company or business is assessed according to its business, financial, legal and tax related aspects. Depending on the target, competition aspects and environmental and product liability risks may also be relevant.
In a corporate acquisition the seller is usually required assume responsibility for having provided true and adequate information for the target. The buyer is to familiarize themselves in order to react to the observations of the investigation before the transaction is carried out. The due diligence investigation often affects the terms and price of an acquisition.