Acquisitions & Due Diligence for Buyers
In mergers and acquisitions, purchasing a business without doing due diligence substantially increases the risk to the purchaser.
There are several reasons why due diligence is conducted:
- To confirm and verify information that was brought up during the deal or investment process
- To identify potential defects in the deal or investment opportunity and thus avoid a bad business transaction
- To obtain information that would be useful in valuing the deal
- To make sure that the deal or investment opportunity complies with the investment or deal criteria
The costs of undergoing a due diligence process depend on the scope and duration of the effort, which depends heavily on the complexity of the target company. Costs associated with due diligence are an easily justifiable expense compared to the risks associated with failing to conduct due diligence. Parties involved in the deal determine who bears the expense and usually, both sides come to the table with their own consultants and research.