What is reverse due diligence?

When a company carries out due diligence on itself, in order to determine if it's ready to be put up for sale. Through this process, the business can decide whether it'll prove attractive to prospective buyers.

Separately, the term can also refer to the process of a seller reviewing the behaviour and financial arrangements of a prospective buyer before an acquisition is completed.

Where have you heard about reverse due diligence?

The term may hit the headlines when a company is about to be put up for sale by its owners. Performing reverse due diligence can help them gauge the financial strength of the company and therefore set its price at the right level.

What you need to know about reverse due diligence.

Under the reverse due diligence process, a company's earnings, assets, tax affairs and commercial operations may all be reviewed. By checking these are in order, its owners can decide whether it's likely to appeal to buyers. An independent third party will often perform reverse due diligence on behalf of the company.

The second meaning of the term allows a selling company to determine whether a prospective buyer is a good fit for it. In this case, the reverse due diligence process may involve looking at the buyer's balance sheet and their strategic plans for the company post-acquisition.

Find out more about reverse due diligence.

To learn more about how companies are bought and sold, see mergers and acquisitions.