Due Diligence definition

Investigating and assessing a business or person’s suitability for contractual agreements in specific time period. Commonly used to refer to the process by which large businesses considering an acquisition evaluate the nature of a smaller company in order to judge whether the acquisition would be worthwhile. The process is also used during mergers between two similar firms.

This process may be conducted by a third-party, such as a professional services firm, and can be further broken down by the part of the business being scrutinised. Operational due diligence (ODD), for example, will look at the firm’s business plan and capital expenditure and whether efficiencies in operation can be achieved post-acquisition. Financial due diligence (FDD) looks at the company’s financial health and future financial potential, commercial due diligence (CDD) looks at the company’s market position and the strength of its offering, while intellectual capital due diligence (ICDD) looks at the value and strength of the company’s intellectual assets.