5.1. Types of Due Diligence

Business and operational due diligence. The goal of this type of due diligence is to identify, verify, and evaluate the company’s operations, facilities, business strategy, and growth potential. Investment bankers take the lead role in this process. Before an investment bank agrees to work for a company, one or more representatives from the bank conduct interviews with management—at a minimum with the CEO and CFO, and with other officials as necessary—and ask probing questions about business operations, management structure, business plans, financial matters, and other relevant issues. The interviews are followed by site visits to one or more plants or other facilities as appropriate.

The investment bankers should not rely solely on management assurances. They also contact employees, suppliers, distributors, and key customers to question them about their relationship with the company and to independently verify information provided by management. In addition to scrutinizing the company itself, the bankers conduct detailed analyses of the company’s competitive position in