M&A due diligence process from scope to decision

Define the perimeter and the workstreams

With the assumptions in hand, define what the review covers. Name the legal entities, the periods, the locations and the product lines in scope. If the deal is an asset purchase, list the assets and liabilities you intend to take. If it is a purchase of shares, the whole entity and its history come with it, which widens the legal and tax review.

Then split the work into workstreams, each with a question, an owner and a way to record conclusions.

• Financial: earnings, revenue quality, cash conversion, working capital and debt-like items.
• Legal: ownership, corporate records, contracts, disputes, licenses and transfer conditions.
• Commercial: customers, retention, pricing, competitors and the reasons customers buy.
• Tax: filings, exposures and the effect of the deal structure.
• HR: key people, employment terms, contractors and benefits.
• IT and product: code ownership, security practice, infrastructure, data handling and third party dependencies.

Use the due diligence checklist as the starting structure and remove the items that do not apply. A services firm needs a closer look at people and customer contracts. A software business needs a closer look at code ownership, open source use and data rights. An asset purchase needs special attention to which contracts can be assigned and on what conditions.

Give each workstream a single accountable owner, even when several people contribute. Documents that everybody can open and nobody owns tend to generate comments but no conclusions.

Protect the exchange before documents move

Before the seller shares sensitive records, put the confidentiality framework in place. The NDA for business sale guide covers the clauses that matter. Agree the permitted use, who may see the material and what happens to it if talks end. Most buyers and sellers also settle the main commercial terms in a letter of intent first, which is covered in the letter of intent to buy a business guide. The LOI usually sets the diligence window and exclusivity, so it frames how much time the process has.

Disclosure typically happens in stages. A first round covers summary financials and a description of the business. After the NDA, the seller shares detailed statements, customer concentration and contracts without names where possible. After the LOI, the seller opens named customers, supplier agreements, employee terms and technical access. A virtual data room makes the staging practical because each folder has its own permissions. You open the next folder when the deal reaches the next stage and close it again if talks stop.

Build the request list and the data room together

A request list and a data room structure should mirror each other. Create folders for the workstreams, number the requests and ask the seller to upload against the number. That way a missing document appears as an empty item rather than as an email thread nobody remembers.

Write requests so they can be answered with a document, not a statement. Ask for the signed customer agreement with all amendments, not for confirmation that the customer is happy. Ask for monthly financial statements for the periods in scope with a reconciliation to the tax filings, not for a summary that the numbers are consistent. Specify the entity and the period in every request, because "the accounts" can mean several different things in a company with more than one entity.

Label what you receive. Separate signed agreements from drafts, historical results from forecasts and management explanations from source records. When the seller cannot provide something, note it in the room and in the findings list. A gap is a finding in its own right, since it may mean the document does not exist or that the seller has not yet looked.

Invite the seller, the seller's lawyer and accountant to upload and view without giving them access to your own internal notes. In Acquisitions these external parties do not need a paid seat for view and upload only. Your internal reviewers use the seats included in the plan.

Run the first pass and sort findings

When the first batch of documents arrives, run a first pass across all workstreams before anyone goes deep. The goal is to learn quickly where the risk sits so that time goes to the right places.

AI review is useful in this pass. Upload financial statements and contracts, and the red flag review highlights potential concerns such as unusual revenue patterns, unusual expense lines, change of control language, termination rights, exclusivity, automatic renewal and missing schedules. Each flag points to the place in the document that caused it. Treat the flag as a prompt to read the passage, not as a conclusion. The tool can miss an issue or misread context, and the document set may be incomplete.

Sort the findings into three groups.

• Questions the seller can answer with a document or a short explanation.
• Issues that need an advisor's judgment, such as the legal effect of a clause or the accounting treatment of an adjustment.
• Issues that touch the price, the structure or the decision to proceed.

Record each finding with its source, the workstream, the owner and the next action. Do not let findings live only in email. A shared list that the whole team can read is the spine of the process, and the exported red flag report can serve as the first version of it.

Go deep where the assumptions are exposed

Return to the ranked assumptions from stage one and test them in order of importance.

For earnings, ask your accountant to reconcile the reported results to bank statements, processor payouts and tax filings, and to review every proposed adjustment with its evidence. The financial due diligence page explains the main questions, and the quality of earnings report example shows how a reviewer structures an earnings bridge. Distinguish an accounting correction from a commercial assumption about how you will run the business.

For customers, compare the customer schedule with the signed agreements and with revenue in the accounts. Look at concentration, renewal dates, pricing changes, credits and cancellations near period end. Where a large customer matters to the price, consider whether a conversation with that customer belongs in the plan and when the seller will allow it.

For contracts, ask counsel to read the agreements flagged in the first pass and any others that carry material obligations: change of control, assignment, exclusivity, minimum purchase, most favored customer terms, indemnities and limitations of liability. AI contract review helps identify where to look. Counsel decides what the language means.

For people and technology, confirm that key employees and contractors have written agreements that assign intellectual property to the company, that the code and domains belong to the entity being sold, and that third party licenses can transfer. Check how the business handles personal data and whether the infrastructure depends on accounts held by individuals.

Connect the workstreams. A customer contract can undercut a forecast, a supplier agreement can explain a margin change and a lease can create a funding need after closing. Hold a short weekly meeting where the owners read the findings list together and move items between groups.

Use Q&A to close gaps without losing the thread

Questions will multiply as the review proceeds. Keep them in one place so the answer sits next to the question and the document. Team and Fund include a Q&A module for this, and a custom checklist lets you add the items specific to the deal. Ask one question at a time, name the document or reconciliation that would resolve it and set a date.

When the seller answers, the advisor responsible for that area decides whether the answer closes the item. A management explanation can be useful context and still leave an evidence gap. Mark each item as resolved by document, resolved by explanation accepted as an assumption, or open. Those labels matter later, when someone asks why a point did not change the price.

Turn findings into decisions

At some point the team has to decide what to do with what it found. Typical responses include the following.

• Proceed unchanged, because the findings confirm the assumptions.
• Change a modeling assumption, for example by assuming a lower renewal rate for a customer with a termination right.
• Negotiate the price, either directly or through structure, such as a deferred payment or an earnout tied to retention.
• Add a closing condition, such as a consent from a counterparty whose agreement restricts assignment.
• Seek a specific protection in the purchase agreement, such as a representation, an indemnity or a holdback.
• Walk away, because an issue undermines the reason for the deal.

The right response depends on how material the issue is and what the deal offers as remedies. Discuss each material finding with the advisor who owns that area, and write down whether the conclusion rests on documented evidence, an accepted assumption or an open uncertainty. A decision maker reading the memo should be able to tell the difference.

Be careful with renegotiation. Raise the issues with evidence, separate the real ones from the minor ones and keep the tone professional. A buyer who arrives with a short, documented list of material points is far more credible than one who sends a long list of every flag.

Report and prepare for closing

Export the red flag report and combine it with the advisor reports and your own summary. State the document coverage, the missing materials and the proposed next actions. The reader, whether an investor, a lender or a partner, should be able to follow a point from the evidence to its effect on the deal without opening every file.

Diligence does not end at signing. List the items that carry into the closing checklist: consents to obtain, accounts and domains to transfer, employees to retain, payments to schedule and conditions to confirm. If the deal uses escrow, the escrow guide explains how funding, transfer and inspection fit together. Keep the signed agreements, the final findings and the closing checklist in the same data room so the integration team starts with the record of what was learned.

Where the process usually goes wrong

• Starting with the checklist instead of the assumptions, which produces volume without direction.
• Leaving workstreams without a single owner.
• Accepting statements where a document is available.
• Treating the first pass as the final answer and never returning to the ranked assumptions.
• Keeping findings in separate email threads, so nobody sees the whole picture.
• Allowing the diligence window to run out because requests were vague or sent late.
• Marking an item closed because someone replied, rather than because the reviewer accepted the response.
• Relying on automated output as if it were an advisor's opinion.

A short rhythm helps avoid these. Agree the assumptions, share the perimeter, send numbered requests, run a first pass, deep dive on the exposed assumptions, close gaps through Q&A and report with the limits stated.

Where Acquisitions fits

Acquisitions combines the pieces described above in one workspace. Create a deal room, set permissions per folder, invite external parties for view and upload and load the checklist. Upload documents, run the AI review and read the flagged passages. Team and Fund add custom checklists, Q&A, watermarking and a view audit log. Export the red flag report for your advisors and investment team.

Acquisitions supports the work and does not replace legal, accounting, tax or other professional advice. The M&A due diligence page describes the full workflow, pricing lists room, seat, storage and analysis allowances and the documents for due diligence guide explains what to request in each category. Analyses count per billing period, and deleting documents does not restore used analyses.

Run the first pass on a real document

Analyze a document from your target and read the demo report. Then create your account to organize the room, invite the other parties and keep the process in one place.