Before entering into any new activity or process, due diligence has become an in-evitable function which every business should go through in order to avoid or reduce the future risks associated with the business. Due Diligence is the intense examination of a target business for a merger or acquisition by a prospective buyer and it can be described as a fact-finding device to assist in determining whether to buy the business at all, how much to pay for the business and how to structure the acquisition. The principal purpose of Due Diligence is to verify assertions made by the Seller and to identify caveats that may not have been disclosed to the Buyer. It is a reasonable investigation about the state of affairs of the business to be acquired, focusing on matters which may have an effect on the future of the business. In short, the Buyer determines through Due Diligence that the business he / she is buying contains all the assets and liabilities that have been paid for.
Due Diligence Investigation is a structured and formal process. Therefore, besides being a time bound process it is also governed by the broad understanding between the parties, which is formalized by drawing up of an MOU. But what about, before signing the MOU, or for that matter even before beginning the process of dialogue? This requirement is only further heightened with compliance requirements under acts like the Patriot Act or the FCPA Act.