Due Diligence (DD)

Definition:

An investigation into a company, the purpose of which varies depending on the context in which it is carried out.

In the context of a securities offering, the issuer’s advisers (specifically, issuer’s counsel and accountants) carry out Due Diligence to allow the underwriters to benefit from the Due Diligence Defense from liability stemming from Section 11 and Section 12 of the Securities Act and to determine the disclosure in the offering document, as well as to comply with any anti-money-laundering, Know Your Client (KYC), and other regulatory requirements.

In the context of large loan transactions, Due Diligence is mainly carried out by the various financial advisers to ensure a transaction is commercially viable.

In the context of an asset or stock purchase, Due Diligence is carried out by the purchaser to evaluate the purchase price, determine what disclosures should be in the transaction documents, and to negotiate appropriate contractual protections for known actual or potential liabilities.

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