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Due diligence is a systematic legal, financial, tax, commercial, and operational audit of a company, asset, or potential counterparty. In Ukrainian, this term is translated as “due diligence” or “comprehensive check.” The procedure allows confirming the accuracy of information provided by the seller, establishing the actual value of the asset, and identifying circumstances that may influence the decision to conclude a deal.

The check covers corporate documents, ownership structure, financial statements, tax liabilities, contracts, lawsuits, intellectual property rights, personnel, licenses, permits, and compliance with regulatory requirements. The depth of analysis depends on the transaction value, industry, jurisdiction, and financing structure.

What is the main purpose of conducting due diligence

The task of the audit is not only to identify violations. It should show the buyer or investor the real condition of the object, determine the value of identified risks, and provide information for negotiations.

The main objectives of the procedure include:

• confirmation of ownership rights to corporate rights, property, and intellectual assets;
• verification of income, expenses, debts, cash flows, and the quality of financial statements;
• detection of tax adjustments, fines, overdue obligations, and hidden payments;
• evaluation of current contracts, litigation, warranties, and limitations;
• identification of factors that may reduce the asset’s price or prevent the deal;
• preparation of terms for the purchase and sale agreement, seller’s warranties, and compensation mechanisms;

The analysis results allow adjusting the price, changing the transaction structure, establishing deferred payment, or abandoning the acquisition. For complex asset structures, consultation with a financial lawyer may be involved in the project.

When is due diligence needed

Comprehensive checks are conducted before parties assume irrevocable financial or corporate obligations. It is necessary not only for the buyer but also for the seller, creditor, investor, or business owner.

The most common situations for its conduct are:

1. Purchase of a company, corporate rights, or a separate business line.
2. Mergers, acquisitions, creation of joint ventures, or strategic partnerships.
3. Investor entering the share capital of a startup or an operating company.
4. Acquisition of real estate, land plots, production complexes, or other significant assets.
5. Providing credit, attracting project financing, or restructuring debt.
6. Entering a new market, choosing a supplier, or concluding a long-term contract.
7. Preparing the business for sale, audit, IPO, or transfer to successors.

The seller may conduct vendor due diligence before the start of negotiations. This check helps to organize documents, fix deficiencies, and reduce the likelihood of price reduction by the buyer.

Main types of due diligence

The team composition is determined by the subject of the transaction and the risk profile. For medium or large businesses, the check usually has an interdisciplinary nature.

The basic areas include:

• legal due diligence – corporate structure, contracts, litigation, licenses, and rights to assets;
• financial due diligence – income, expenses, EBITDA, working capital, debts, and projected cash flows;
• tax due diligence – declarations, tax burden, transfer pricing, and potential adjustments;
• commercial due diligence – market, competitors, client base, pricing, and demand outlook;
• operational due diligence – business processes, production capacities, supply, and dependence on key resources;
• personnel due diligence – employment relations, remuneration, incentive programs, and key staff;
• IT and cybersecurity due diligence – information systems, data protection, software licenses, and cyber incidents;

The relevance of non-financial factors is increasing. According to the 2024 KPMG study, 71% of respondents reported increased importance of ESG due diligence in deals over the previous 12-18 months.

Stages of conducting due diligence

The process begins with defining the deal’s purpose and a list of critical questions. Without a pre-agreed scope, the team may spend time on documents that do not affect the asset evaluation.

The work is typically carried out sequentially:

1. Define the object, period, directions, and materiality criteria for the check.
2. Sign a confidentiality agreement and create a document request list.
3. Create a secure virtual data room and allocate access.
4. Review documents, public registries, financial indicators, and operational data.
5. Conduct interviews with owners, managers, and responsible employees.
6. Compile a risk register with assessments of probability and possible financial consequences.
7. Prepare the report, recommendations, and contract terms.

Consultation with an accountant is necessary to check accounting policies, primary documents, accounts receivable, and accuracy of financial indicators. Conclusions must distinguish confirmed violations from assumptions and issues where documents were not provided.

Key risks and their identification

The presence of a risk does not always mean the deal must be abandoned. It is important to establish its size, probability of realization, and the possibility of contractual protection.

During the check, the following are most often analyzed:

• defects in corporate decisions and unconfirmed authority of officers;
• hidden debts, pledges, guarantees, warranties, and off-balance liabilities;
• tax violations, sham transactions, and dealings with related parties;
• litigation, enforcement proceedings, sanctions, and AML/KYC risks;
• income dependence on a single client, supplier, or key employee;
• lack of rights to trademarks, software, or manufacturing technologies;
• data leaks, outdated IT systems, and privacy violations;

Legal consultation helps translate identified circumstances into specific contractual terms: representations and warranties, indemnification, price retention, escrow, or the right to terminate the deal.

Other specialized types of due diligence

For regulated or technologically complex industries, standard checks are insufficient. Additional types include anti-corruption, environmental, sanctions, reputational, technical, insurance, land, antitrust, and intellectual property due diligence.

Separate analysis is required for ESG obligations, carbon footprint, human rights in supply chains, personal data processing, and AI usage. The scope of the check must comply with the legislation of jurisdictions where the parties are registered, assets located, and activities performed.

Risk minimization strategies

Identified issues must be reflected in the financial model and deal documents. For each material risk, the responsible party, deadline for resolution, and control method are defined.

Practical mechanisms include:

1. Price reduction reflecting expected losses or necessary investments.
2. Establishing deferred payment, earn-out, or holding funds in an escrow account.
3. Obtaining special seller guarantees and rights to compensation.
4. Fixing violations as a precondition for closing the deal.
5. Insurance of warranties and indemnities under the contract.
6. Conducting repeat checks of critical facts immediately before closing.

The scale of deals increases the cost of error. According to PwC data, the share of transactions worth over $5 billion in the global M&A value rose from 26% in 2024 to 39% in 2025 and 48% in 2026. Under such conditions, audit results must be integrated into valuation, financing structure, and post-deal integration plan.