Conducting proper research before entering into any major agreement or contract can make the difference between the success or failure of that relationship. This vetting process is known as due diligence, and it's conducted before the consummation of any deal. Finding the appropriate due diligence services can be based on the industry in which an agreement is being reached. Whether it's a merger or acquisition, the purchase of real estate property, or an investment into a company, there are services to support this vetting process. The right service can be found either by networking with other industry participants at conferences and seminars, conducting an online search, or by working the phones.
Before hiring another firm or party to assist with a vetting process for any new venture or relationship, due diligence services can begin internally. A checklist is created that will narrow down the selection process or rule out unqualified parties. If it's an investment venture, the performance history over the past several years should be analyzed, comparing financial expectations with actual results. Other key relationships should also be examined. These activities are all part of due diligence services that can be coupled with hiring an outside firm.
There are different types of due diligence services, including investigative due diligence, which can be conducted by current or former law enforcement personnel and are appropriate for investment deals. Investigative due diligence can be found by networking with industry peers or by using an investment database. There are vetting firms that have former law enforcement personnel on staff who know the types of red flags to look for in an individual's background and character that could point to potential fraudulent behavior. An investment consultant might also be able to recommend an investment due diligence service. This type is designed to uncover tendencies of fraud before any malpractice occurs and can prevent both institutional and small investors from entering into a fraudulent investment agreement such as a Ponzi scheme, which is an investment scam that pays profits with money meant to be invested.
Merger and acquisition due diligence can also be applied. Before a corporation enters into an agreement that will change the future of that business, it has a responsibility to shareholders, employees, and a board of directors to select the right relationship and conditions. A business might hire a deal consultant and a lawyer to support the vetting process and may even assign some key internal personnel to assist with the process.
An external third-party firm is especially vital if a deal is happening overseas when it is not possible to be physically present to begin the research process. In this instance, a firm that has a presence in the region in which a deal is being considered should be engaged. This is where building on existing relationships with bankers, consultants, and industry peers comes into play and can lead to the appropriate integration of due diligence services.
