The Due Diligence Types & Process in the M&A

Mergers & Acquisitions (M&A) are important aspects of corporate finance, strategy and management. They are carried out with the intention to achieve particular goals and objectives by utilizing business resources and generally deal with capital structure of a business.

The process of M&A includes various ways of buying, selling, combining and defining companies. It may be done so that a business grows rapidly in its original sector or location, or so that it flourishes in yet-uncharted territories.

M&A Due Diligence Process

After a prospective buyer shows interest in your business and you decide to go for M&A, do understand you have to be really involved in this long and often-tiring process. Even if you generate and receive a substantial amount of interest around the purchase of your business, this is only the beginning.

When it comes to M&A, a buyer needs to confirm pertinent information with regards to the seller including the latter’s financials, customers, and contracts. The goal of the M&A Due Diligence Process is just that. It facilitates the deal for the buyer and takes them one step further for closing the deal.

Often, a buyer will not have too many strict requirements. The problem arises when banks or private equity firms, which act as partners of the buyer in the deal and provide some of the financing, state their requirements. Understandably, they are part of the deal and will have certain demands. And it is your responsibility to meet the demands of the buyer and their partners.

When your business goes through a complex due diligence process, the idea is to ensure that a sound investment is being made. Therefore accountants, lawyers and other professionals specializing in business acquisition will carefully examine your business on behalf of the buyer and their partners.

Theoretically speaking, once the Letter of Intent (LOI) is signed, the process of due diligence should start off. But in reality, many sellers are not prepared at all at this moment. This is because they need to provide a vast amount of data during the due diligence process, and they do not often realize this.

But technically, the moment both the parties have signed the LOI, all due diligence information should be ready and available for the buyer. Yes, compiling due diligence information is a time-consuming process and you should start gathering this information right from the day you start marketing the business to buyers.

Three to six months’ time is needed for the entire process to be completed. Prepare yourself accordingly. This is why you, as a seller, should first understand what you can expect from the due diligence process. This will equip you to handle the entire situation well, because, in the end, the idea is for everyone to come out ahead.

Types of M&A Due Diligence

One acquisition is bound to differ from another, and situations are never the same. There are generally five types of due diligence though that together form the entire process. We will discuss them shortly.

Business Due Diligence

This is applicable for every potential M&A. It aims to determine whether the company’s cash flow and revenue is sustainable as a long-term investment, basically, if the business has potential for growth. This involves a careful analysis of your finances, as well as a market study of your target customers.

Accounting Due Diligence

This aspect checks the accuracy of the financial information provided about the company to the buyers. An accountant needs to prepare a “quality of earnings” report and you will need to provide the biggest amount of documentation during this part of the due diligence process.

Legal Due Diligence

Here, the legal aspects of your business come into play. Lawyers will check for any potential liability issues in the current contracts that you hold with providers. They will also review the ongoing leases that you have, so that there is no trouble running the business after the acquisition and the access to the property, facilities, or equipment is continued.

IT Due Diligence

This phase sees IT professionals assess the current IT resources that your company has. Before the deal is finalized, down time issues, security risks, and other IT problems need to be resolved. The significance of this phase, though, depends on the industry in which your business operates.

Environmental Due Diligence

Finally, the due diligence team may focus on uncovering any environmental risks that may be associated with acquiring your company today or in future.


The M&A due diligence process can be drawn out and complex. A number of professionals will work with you throughout the process and a lot of data and information will be required. But keep patience. Your hard work will be worth it when you reach a final deal.

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