Due diligence is a rigorous investigative procedure that is carried out prior to making major business decisions like mergers, acquisitions and investment decisions. It involves a thorough investigation of various aspects of the company's activities to assess the business's assets, liabilities and overall financial health. It also checks for legal risks and compliance. M&A deals that fail often are the result of insufficient or incorrect investigations.

There are a variety of kinds of due diligence, and each one has its own unique set of requirements. The primary purpose of due diligence is to uncover any potential issues that could undermine the deal or increase the risk post-transaction. It's crucial to have a variety of sources available to conduct research. This can include paid online information services, specialist databases and search engines for free.

There are two types of due diligence: soft and hard. Hard due diligence focuses on data and numbers, such as reviewing audited financial VDR statements including profit and loss accounts and balance sheets, as well as budgets and projections. It also involves a deep examination of a company's contracts and lease agreements, details of real estate (deeds mortgages, title policies and use permits), and purchase and sales history. It's important to evaluate this information against similar companies in the industry to gauge the size of the business and its potential growth.