What does due diligence mean, and which is the due diligence process?

6 September 2021

In short, due diligence is a thorough analysis. The term is generally used in Mergers & Acquisitions processes and refers to the assessment that the potential buyer makes on the assets, liabilities, and commercial potential of the company to be acquired, before signing the contract. Due diligence analysis can be done, however, before any major business decision, so that risk management is optimized. A due diligence investigation means nothing more than correct, objective, and complex information, which is exactly the type of resource that any entrepreneur or manager needs to make the right decision for his business.

Although it has started to be used in Romanian quite recently, the term “due diligence” has a history of at least 500 years, during which time it was used with the meaning of “necessary precaution”. It entered the legal language due to a 1933 US law, called “due diligence investigation” and referred to a method of defence that brokers could use if they were accused of disclosing information to investors. Over time, the term designating how the process should have taken place, “with due care”, began to be used in its abbreviated form, from “investigation performed with due diligence” to “due diligence investigation” and, finally, to “due diligence”.


When is a due diligence analysis needed and what are the main types of due diligence?

Due diligence analysis is necessary whenever you want to decide based on correct information and thus have control over the risk involved in a purchase, regardless of the field in which it is made. Whether we are talking about the acquisition of a company, a building or an intellectual property, due diligence analysis is recommended as an essential preventive measure in fraud risk management.

Here are just a few types of due diligence investigations that can be performed.

Financial due diligence is the assessment of a company’s financial health, analysing its past and present financial performance in terms of tax documents, assets, debit and credit lines, cash flow and other relevant financial indicators. The objective of a financial due diligence is to establish future forecasts as accurate as possible, covering all the risks that may arise.

Commercial due diligence is the analysis of the market in which the company operates or in which a potential investor is interested. In this case, the due diligence investigation analyses, the size and value of the market, the competing companies, the market share, the customer base and its commercial potential or development opportunities.

IT due diligence is an audit of a company’s IT infrastructure, processes, and security. The analysis aims to assess existing structures, identify security risks, the existence or complexity of an incident response plan and even the procedures for managing and protecting personal or sensitive data in a company. All these can represent risk of fraud and major vulnerabilities, with implications on all levels of a business, from financial to reputational.

HR due diligence is an analysis of a company’s staff and documents related to employees and the management board, which also captures and evaluates the company’s salary and benefits policy, Internal Regulations, organizational culture, bonuses, or internal procedures. Background check investigations for decision-makers on the management board or investigations for corporate fraud risk are also not omitted.

Operational due diligence lists and evaluates the company’s main operations, its operational facilities and processes, potential risks or solutions for rapid improvements that would increase the company’s value.

Environmental due diligence is an analysis of the necessary environmental permits and licenses, which assesses how the company complies or not with the legal regulations in force, given that their non-existence or violation may also lead to cessation of business and financial repercussions between the most consistent.


Who can perform due diligence and how much does due diligence cost?

Depending on the field, due diligence analysis can be performed by auditors, accountants, lawyers, financial analysts, M&A advisors, or private investigators. It is recommended to select external suppliers, as they have the advantage of objectivity and expertise gained in hundreds of such investigations.

SPIA investigators, for example, constantly conduct due diligence investigations in various industries, from M&A to real estate or agriculture. Regardless of the market in which the companies that use a private investigator operate, our investigation has a double role: on one hand, to validate or invalidate the information held until then, and, on the other hand, to discover new information, regardless of whether it had been intentionally or unintentionally omitted, which may affect the interests of the client who uses our private investigation services.

The cost for a due diligence analysis depends on several coordinates:

– The complexity of the company to be evaluated

– The length of time the analysis is required

– The expertise of the specialists used

– If the due diligence analysis is performed with internal, external or in a mixed format resource

– Additional human or material resources that are involved in the investigation


In certain cases, such processes M & A, due diligence analysis cost is borne by both parties to the acquisition.


5 tips for an optimal due diligence

  1. Define SMART objectives and indicators from the beginning, so that the team has the necessary coordinates and works organized, quantifiable and measurable, with well-defined deadlines.
  2. Assemble a complete team, covering all areas of interest and composed of both specialists in their field of activity and decision-makers within the company.
  3. Sign an NDA to ensure the confidentiality of the process, the analysed data and the results obtained. Ensure that the information obtained is then communicated and stored in a fraud-free storage environment.
  4. The final due diligence report should contain, in addition to all the information set out and required in point 1, a SWOT analysis (strengths, weaknesses, opportunities and threats), as well as several recommendations for risk management.
  5. Due diligence is a precautionary measure in the case of a major business decision, but it should also be seen as a method of maintaining a company’s health, just like regular check-ups.


In conclusion, professionals define due diligence as an investigation or audit of a potential investment, carried out by a potential buyer with the aim of confirming or refuting the accuracy of the information provided by the seller and assessing the value of the products or services to be purchased. But if we leave the topic of companies and refer to everyday life, we understand that we perform daily due diligence analyses, even without perceiving them as such: when we buy a house, an appliance or when we choose our child’s after-school, we decide based on:

– the research done

– information provided by the seller

– comparisons with the profile market

– analysis of the information obtained.


You haven’t thought, so far, that even ordering a new vacuum cleaner requires due diligence, have you? But when it comes to a company and protecting its interests, for a successful due diligence analysis, choose the leader of the Romanian new generation of private investigators.