What
is "Due Diligence?
The
term "Due Diligence" first came into common use as
a result of the US Securities Act of 1933.
The
Act included a defense that could be used by Broker-Dealers
when accused inadequate disclosure to investors of material
information with respect to the purchase of securities.
So
long as they conducted a "Due Diligence" investigation
into the company of who's equity they were selling, and disclosed
to the investor what they found... they would not be held liable
for nondisclosure of information that failed to be uncovered
in the process of that investigation.
A
Due Diligence investigation is a reasonable investigation to
find all facts that would be of material interest to an investor
or acquirer of a business. It may or may not uncover all such
facts, but it should be done in a manner reasonably calculated
to do so.
The
entire Broker-Dealer community quickly institutionalized as
a standard practice, the conducting of due diligence investigations
of any stock offerings in which they involved themselves.
Originally
the term "Due Diligence" was limited to public offerings
of equity investments. Over time it has come to be associated
with all investigations of both public and private mergers and
acquisitions.
