Overview of Cultural Due Diligence

DUE DILIGENCE, MOST SIMPLY, is the investigation of one party by another party to gather information that will assist in decision making and risk analyses. It is done in conjunction with transactions between people or companies—ranging from buying a home at one end of the continuum to multi-billion-dollar corporate mergers and acquisitions at the other. Definitions vary, but common to all is the purchaser attempting to find any skeletons in the closet that may sour the deal. It is a formalized and detailed outgrowth of the centuries-old concept of caveat emptor—let the buyer beware. In mergers and acquisitions, due diligence has come to mean "a series of exploratory activities used in evaluation of a target company prior to finalization of the merger or acquisition" (Clemente & Greenspan, 1998). Traditional due diligence focuses primarily on the financial, legal, regulatory, and tax issues through the processes of disclosure and discovery.

Exhibit 4.1 shows the categories and areas of examination of a traditional comprehensive due diligence.

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