Due Diligence

Due diligence is the structured investigation a buyer conducts after signing a letter of intent to verify the seller's representations and identify risks before committing to a purchase. It covers financial statements, legal documents, contracts, employee records, regulatory compliance, intellectual property, environmental matters, and operational systems.

In Canadian business acquisitions, due diligence typically takes 30–90 days depending on deal complexity and information availability. Buyers engage a CPA for financial due diligence, a lawyer for legal and contract review, and specialists (environmental consultants, IT auditors, sector experts) for specific risk areas.

Due diligence findings are incorporated into the purchase agreement through representations and warranties, indemnification provisions, purchase price adjustments, and escrow holdbacks. Issues identified during due diligence often trigger renegotiation of price or deal structure — or termination of the transaction if material problems are uncovered.

See also: Letter of Intent, Purchase Agreement, Representations and Warranties, Holdback, Data Room, Quality of Earnings.