What is due diligence and what are the main types?

Answer

Due diligence is the buyer's investigation of the target before closing. Main types: (1) Financial DD — review of historical financials, quality of earnings, working capital trends; (2) Commercial DD — market analysis, customer interviews, competitive positioning; (3) Legal DD — contracts, litigation, IP, compliance; (4) Tax DD — historical tax exposure, structuring options; (5) Operational DD — supply chain, IT systems, integration risks; (6) HR DD — key employees, benefits, labor risks; (7) Environmental DD — for industrial or asset-heavy deals.