A phrase www.aboutvdr.com/what-is-a-vdr-virtual-data-room/ that is often used in business, due diligence refers to take prudent care and caution. Investors who want to minimize risk should conduct their own due diligence before making an investment, broker-dealers make sure to inform the parties of all the information regarding the transaction so that they are not held liable and companies who are contemplating acquiring another firm do their due diligence on the other side before concluding the deal.
This article will explore the various types of due diligence and how each type of DD can be a part of the overall process.
The most basic, and basic kind of DD is a regulatory due diligence. This involves analyzing the compliance risk or legality of the transaction. This kind of DD can be particularly crucial in industries with high regulations, such as finance and healthcare where a breach of compliance could result in fines, penalties or even shut down.
Financial due diligence (FDD) is the most widely-used form of DD and aims to determine whether the financials contained in a Confidentiality Information Memorandum are accurate. It involves reviewing all financial statements, including liabilities, assets and cash flows. FDD also reviews contracts and agreements, which include partnerships and licensing agreements, term sheets, and loan and bank financing agreements.
Administrative due diligence focuses on the verification of administrative-related items. This type of DD for instance, examines the number and occupancy rate of the facilities leased or owned by the company, as well as the staffing levels. It could also include a look at employment contracts, nondisclosure agreements, non-solicitation contracts, as well as other documents related to human resources.
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