On November 4, we participated in the National Acquisition Day hosted by Brookz. The event also focused on due diligence: the review of the target company’s records (including financial, tax, legal, and commercial aspects) conducted by a buyer.
This process involves reviewing, among other things, the business’s customer and supplier contracts, its finances, and its employment agreements. Many entrepreneurs view it as an administrative phase that you simply go through.
That perception is incorrect. The results of the due diligence review directly determine the purchase price, the contractual terms, and the decision on whether or not to proceed with the deal.
A moment of reflection for both parties
Due diligence not only identifies potential risks but, more importantly, reveals how the parties handle them. For the buyer, it is a way to test assumptions and refine terms. For the seller, it serves as a test of preparation, transparency, and control over the sales process.
Deal-breakers: Where Things Go Wrong
In our deal practice, we see that transactions rarely fall through because of a single red flag finding. They stall due to an accumulation of procedural errors. This always affects the purchase price and the terms:
- Information is shared incompletely or late. This immediately leads to mistrust and renegotiation.
- Essential documentation is missing or out of date. Examples include unsigned contracts, dismissed claims, or unfulfilled personnel obligations that only come to light at a late stage.
- The data room—the digital environment where all documents are shared—is disorganized. Files are poorly structured, difficult to read, or stored in the wrong folders.
- Financial information is provided in non-editable formats, such as PDF instead of Excel.
- The Q&A session is proceeding slowly or evasively. Questions remain unanswered, causing uncertainty to mount.
Dealmakers: How to Stay in Control
- The due diligence process takes place via a well-organized virtual data room.
- The documentation is complete, up-to-date, and logically organized.
- Financial information is available in editable formats.
- Questions are answered quickly, thoroughly, and consistently.
- It is clearly agreed upon in advance what will be examined, so that the focus remains on the risks that really matter.
A well-structured process speeds up negotiations and gives both parties more control.
Set the tone for the rest of the deal
How the due diligence process unfolds determines what happens next. Will the negotiations remain manageable? Or will the discussion shift to a purchase price adjustment and (additional) indemnities? This phase lays the foundation for the transaction documentation.
Therefore, don’t treat due diligence as just another phase to go through, but as the moment when the deal takes shape. Those who manage this phase tightly prevent risks from having to be resolved later under time pressure and at higher costs, or from the buyer having to accept those risks.
