Before committing to the transaction, the buyer will want to ensure that it knows what it is buying and what obligations it is assuming, the nature and extent of the target company’s contingent liabilities, problematic contracts, litigation risks and intellectual property issues, and much more. This is particularly true in private company acquisitions, where the target company has not been subject to the scrutiny of the public markets, and where the buyer has little (if any) ability to obtain the information it requires from public sources.
Due diligence is usually performed after the intent to purchase documents have been sigend but before the formal purchase agreement.
Depending on the purchase, the following are some of the topics that are likely to be included in the process:
General company information
Technology and intellectual property
Products and services
Customers and sales
Marketing and competition information
Strategic fit with buyer
Antitrust and regulatory issues