When is due diligence typically used?

Due diligence is typically used for corporate acquisitions, major investments, mergers, financing and when establishing new business relationships. It is also used for customer due diligence in anti-money laundering work to identify and manage elevated risk situations.

What does a due diligence review usually cover?

A due diligence review usually covers financial information, key contracts and legal commitments, governance and organisational structure, and relevant compliance requirements such as GDPR and anti-money laundering rules where applicable. The findings are commonly summarised in a report that supports negotiation, pricing and decision-making.

Due diligence

Q: What does due diligence mean?

Due diligence means carrying out a structured review and analysis of a company, investment or project before a major business decision. The purpose is to identify assets, liabilities, contractual obligations and risks so that the parties can act on well-grounded terms.

We carry out due diligence, risk identification and legal review

CONTACT US

Glossary
Due Diligence

Explained – what does due diligence mean?

Due diligence is a systematic review of a company, an investment or a project carried out in advance of a major business transaction. A business lawyer is often involved to ensure that legal, financial and organisational matters are properly assessed. The aim is to build a clear picture of the business, its assets, liabilities, contracts and risks before the parties enter into binding agreements. The concept is primarily used within company law in connection with corporate acquisitions, investments and capital raisings. In the anti-money laundering context, the term is also used to describe customer due diligence, where obliged entities review their customers to identify and manage risks. Typical due diligence services range from legal and financial reviews to risk analysis and reporting as part of a wider due diligence process.

When does due diligence become relevant?

Due diligence is particularly important on the acquisition of companies or shares, for major investments, and for mergers and amalgamations. The concept is also used in connection with financing and when establishing new business relationships. In anti-money laundering work, due diligence becomes relevant when establishing new customer relationships and for transactions that may involve an increased risk of irregularities. Through the due diligence process, decision-makers obtain a sound basis on which to act in the right way and on the right terms. Where appropriate, due diligence consulting supports management with scoping, execution and reporting.

Illustrated workflow showing a due diligence process with business professionals, document review, contract signing, legal assessment symbol, and approval steps, representing corporate due diligence, compliance checks, and legal risk evaluation.

Due diligence services – points to consider

When an organisation undertakes due diligence, several core steps should be considered to ensure the process yields reliable outcomes. These are common components of due diligence services and a structured due diligence review.

Review the company’s financial position through balance sheets, income statements and cash-flow analyses.
Map legal commitments such as contracts, intellectual property rights and any disputes.
Evaluate the organisation’s structure, leadership and internal governance processes.
Assess compliance with relevant laws, for example the GDPR and anti-money laundering rules.
Identify employment law conditions and terms for staff.
Assess environmental risks and any licensing or permit requirements.
Carry out customer due diligence in accordance with the Anti-Money Laundering Act to detect suspicious patterns and transactions, including ongoing customer due diligence where risk dictates.

Thorough due diligence provides confidence at the negotiating table and establishes a stable basis for future decisions, while strengthening the organisation’s ability to prevent irregularities. A due diligence lawyer can help scope red-flag areas and ensure findings are clearly documented.

Due diligence

Why is due diligence important?

Due diligence matters because it provides a complete overview of the company or business to be acquired, invested in or assessed for money-laundering risk. The review makes it possible to identify risks, opportunities and factors that may affect the transaction both legally and financially. Expert due diligence consulting can streamline information requests, clarify findings and align stakeholders.

A thorough process may lead to adjustments to the contract, a revised purchase price or, in some cases, a decision not to enter into a business relationship. In this way, due diligence is central to making well-grounded decisions and avoiding unforeseen costs. Within the anti-money laundering framework, due diligence also helps prevent businesses being misused for criminal purposes.

Finally, due diligence builds trust between the parties. When both sides share a common understanding of the company’s real position, the conditions for long-term and sustainable cooperation improve. In the same way, customer due diligence protects financial actors and strengthens confidence in business relationships. A due diligence lawyer can act as a single point of contact to coordinate legal due diligence and financial due diligence workstreams.

In combating money laundering, due diligence is used to meet customer due diligence requirements under the Anti-Money Laundering Act. Obliged entities must identify their customers, verify their identities and understand the purpose of the business relationship. In some cases, enhanced due diligence is required, particularly for high-risk customers or complex transactions. Common elements of this type of due diligence are:

Verification of the customer’s identity and ownership structure
Assessment of the customer’s risk profile
Monitoring of transactions to detect unusual patterns
Assessment of whether the customer is a politically exposed person (PEP)
Regular updates of customer information and ongoing customer due diligence

This process reduces the risk of businesses being used for money laundering or terrorist financing and is a central element of compliance with anti-money laundering rules.

The process is used mainly for corporate acquisitions, investments and mergers. It may also be relevant for major financing arrangements or partnerships. In the anti-money laundering area, it is used for customer due diligence to identify risks linked to new and existing customers. External due diligence consulting can be engaged to manage complex or cross-border reviews.

Timelines vary depending on the size and complexity of the deal or relationship, and on the scope of the review.

A due diligence may cover several areas depending on purpose. Common components include:

Financial review
Legal review
Review of contracts and customer relationships
Assessment of intellectual property rights
Analysis of employment law issues
Customer due diligence under anti-money laundering rules

All investments carry risk. Through due diligence, investors can gain a realistic view of the business, understand the risks, and make fact-based decisions. This increases the likelihood of a profitable outcome.

The legal review focuses on contracts, rights, licences and disputes. The financial review analyses the company’s finances, historical performance and forecasts. Customer due diligence under anti-money laundering rules is a complementary component focused on customer relationships and risk assessment.