What Is Due Diligence and Why Can It Affect the Purchase Price?
Due diligence is a comprehensive review of a company’s financial, legal, tax, employment, commercial, and technical aspects. If potential risks are identified (e.g., litigation, contracts pending renewal, or EBITDA adjustments), the buyer may request price adjustments, a larger escrow (an escrow is a secure account in which a portion of the purchase price is held for a specified period to cover potential indemnity claims), or Warranty & Indemnity (W&I) insurance to protect against potential liabilities.
