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Due Diligence Definition

What is a Due Diligence?

A Brief Explanation of a Due Diligence | Definition

Due diligence refers to the steps one should take before entering into a contract or making a business decision. Many times the completion of a transaction of an asset is dependent on the conclusions found during the due diligence process carried out. Due diligence is done to prevent harm to a buyer or seller.

In private equity, due diligence is always performed in many different areas. Before a limited partner enters into a limited partnership with a private equity firm, the investor will often request to see the performance history of the firm. Case studies and marketing materials are distributed as a part of the due diligence process because investors do not want to lose their capital. Similarly, a private equity firm will perform due diligence when attempting to enter a market. Before a firm makes an acquisition due diligence will be performed by looking at the target company’s financial statements and evaluating management and business practices.

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