It encapsulates a thorough study of not only the financial but also that of non-financial aspects plus assists the purchaser in identifying the underlying critical factors and providing him with a cost-benefit analysis, prior to the signing of binding contract papers. Due diligence is generally performed in cases of corporate restructuring, venture capital financing, lending, leveraged buyouts, public offerings, disinvestment, corporatization, etc.

Majorly, there are four types of Due diligence –

•  Commercial due diligence – It involves a holistic evaluation from a commercial, strategic and operational perspective.
• Financial due diligence – It comprises a comprehensive analysis of the books of accounts and other financial information pertaining to the entity. It should be performed after the completion of commercial due diligence.
• Legal due diligence – Legal aspects of the functioning of the entity being reviewed.
• Tax due diligence – Mergers and Acquisitions are complex transactions and so are the tax effects in relation to these deals. It is an integral component in the due diligence exercises and bears long-term implications.