Due diligence is the buyer’s opportunity to verify what it is acquiring before signing. It tests the seller’s claims, uncovers risks that affect price or structure, and lays the groundwork for integration. Skipping or rushing it is one of the most expensive mistakes in mergers and acquisitions.
1. Financial due diligence
- Audited financial statements for recent years and current management accounts
- Quality of earnings: one-off items, revenue recognition, customer concentration
- Working capital trends and seasonality
- Net debt, off-balance-sheet liabilities and guarantees
2. Tax due diligence
- Corporate tax, VAT and payroll tax filings and open audits
- Transfer pricing documentation for related-party transactions
- Tax losses and their usability after the change of ownership
Cross-border deals add treaty and withholding questions; see our international tax advisory.
3. Legal due diligence
- Corporate documents, shareholder agreements and changes of control clauses
- Key customer and supplier contracts
- Litigation, permits and licences
- Intellectual property ownership
4. Commercial due diligence
Is the market growing, and can the target keep its position? Interviews with customers and competitors, market sizing and pricing analysis test the growth assumptions in the business plan. This is where market research directly protects the valuation.
5. Operational and HR due diligence
- Key people, retention risks and employment contracts
- Production capacity, maintenance and supply chain dependencies
- IT systems, data protection and cybersecurity
Red flags to watch
- Revenue concentrated in a few customers without long-term contracts
- Large differences between management accounts and audited figures
- Unresolved tax audits or litigation
- Dependence on the founder for key relationships
From findings to the deal
Findings feed into the price, warranties and indemnities, conditions precedent and the integration plan. A good due diligence report prioritises issues by impact instead of listing everything.
OAD Consultancy supports buyers with mergers and acquisitions advisory, from target screening to due diligence coordination. Contact us to discuss your transaction.
Frequently asked questions
What are the main types of due diligence?
Financial, tax, legal, commercial, operational, HR and, depending on the business, IT, environmental and regulatory due diligence.
How long does due diligence take?
For a mid-sized private company it commonly takes several weeks to a few months, depending on the size, complexity and how quickly the seller provides information.
Why do many acquisitions fail to create value?
Common reasons are overpaying, overestimating synergies, cultural clashes and poor integration planning. Thorough due diligence and an integration plan reduce these risks.
