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The Different Types of Due Diligence

The Different Types of Due Diligence

A term that is commonly used in the business world, due diligence essentially means to take reasonable care and with caution. Investors who wish to minimize the risk they take must do their try this web-site own due diligence prior to investing. Broker-dealers ensure that they inform a third party about all details regarding a transaction so that they are not held accountable. Companies considering acquiring another company also conduct their due diligence.

This article explores the different types of due diligence, and how each type of DD can be a part of the overall process.

The first and most basic type of DD is regulatory due diligence, which examines the compliance or legal risks associated with the transaction. This type of DD is particularly important in highly-regulated industries such as healthcare and finance where infraction could result in fines, penalties, or even shut down of operations.

Financial due diligence is the most commonly used form of DD. It checks whether the financials provided in the Confidentiality Information Memorandum (CIM) are true. It typically involves examining all financial statements including assets, liabilities and cash flows, as well as projections. FDD also looks over agreements and contracts, including partnerships and licensing agreements, term sheets for loans and bank financing agreements, and many more.

Administrative due diligence is a type of due diligence which focuses on administrative-related issues. For instance, this kind of DD looks at the number of facilities owned or leased by a company, the occupancy rates of these facilities, and the level of staffing. It may also look at employment contracts as well as nondisclosure agreements.

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