Due diligence is the expression given to the investigation by the buyer of the target company and may be carried out by the buyer directly, or by its accountants or legal advisors.
The process usually involves the buyer submitting a due diligence questionnaire to the seller. This will include questions, and requests for copies of documents, surrounding the target company and its business and financial position. Further requests for information are likely to follow after the buyer has reviewed the initial information provided.
From a seller's perspective, it is helpful to have pre-empted the questionnaire and located the relevant documents and information that is likely to be required. This will help highlight any potential issues and give the seller an opportunity to deal with them beforehand.
The due diligence process can be lengthy and time-consuming so a seller may choose to outsource the management of this to its solicitors. This can have the added benefit of assisting the seller's solicitors in the disclosure process, as they will already have a clear understanding of the information that has been provided and what needs to be disclosed. Not only can this save costs in the long-run, it can also help protect the seller's position by ensuring all relevant disclosures are made.