Due diligence is a process of careful analysis carried out to enable a thorough assessment of an object, a business partner or a transaction. Due diligence identifies the strengths, weaknesses, opportunities and threats of a transaction or a business relationship. Managers can then make an informed decision based on the results obtained.
In business, due diligence is used in a number of situations. Most frequently, it takes the form of a business valuation for a company acquisition (buyer due diligence) or company sale (sell-side due diligence, also referred to as vendor due diligence, VDD). Due diligence is also mandatory for an initial public offering (IPO). Additionally, companies carry out regular risk assessments on new and existing customers for money laundering prevention purposes (customer due diligence).