What's Included in an M&A Due Diligence Process?

Due diligence is the investigation phase between LOI and closing. Here's what buyers actually look at.

Financial

Three to five years of financials, monthly detail, quality of earnings, customer profitability, revenue recognition, working capital trends, capital expenditures, and forecasts.

Tax

Federal, state, and local tax filings; sales tax nexus; unclaimed property; R&D credits; state apportionment. Undisclosed tax exposure is a common deal-killer.

Legal

Corporate records, cap table, material contracts, litigation, IP ownership, employment agreements, non-competes, and any regulatory matters.

Commercial

Customer contracts and concentration, retention analysis, sales pipeline, pricing history, competitive positioning, and market outlook.

Operational

Facilities and leases, supply chain, key vendor relationships, insurance, safety records, environmental matters, and business continuity.

HR

Org chart, compensation, benefits, retention risks, employee handbook, harassment/discrimination history, immigration compliance.

IT and cybersecurity

Systems architecture, software licenses, data security posture, incident history, and technology roadmap.

How to survive it

A well-organized data room, prompt responses, and an advisor who can quarterback the process. Diligence typically runs 6–12 weeks. Being ready shortens it materially and reduces the risk of the deal stalling.