due-diligence
Due diligence is the structured investigation a buyer, investor or lender runs on a target before committing capital. In M&A it is a set of workstreams — financial, commercial, legal, tax and operational — designed to test whether the story, the numbers and the contracts will survive contact with reality.
In a company sale, due diligence is not a single report. It is a coordinated investigation that starts once a buyer has enough conviction — typically after a letter of intent or term sheet — and runs until the buyer is willing to sign a share purchase agreement or asset purchase agreement.
Professional practice splits the work into specialist streams. Financial due diligence tests whether reported earnings convert into cash and whether net debt and working capital are stated on a deal basis. Commercial due diligence tests whether the market, customers and competitive position support the plan. Legal due diligence tests title, contracts and claims. Tax due diligence and operational due diligence close the remaining gaps.
The evidence sits in a data room. Questions travel through Q&A. Findings feed price, earnout mechanics, escrow and the representations and warranties package.
Sellers sometimes commission vendor due diligence (VDD) so that every bidder starts from the same pack. That can shorten the auction, but it does not replace a buyer’s own work. Buyers still re-run the numbers they will underwrite, especially the quality of earnings bridge and any leakage under a locked box.
An Iberian industrial distributor with €18m revenue and €3.2m reported EBITDA receives two offers. Bidder A prices 7.0× reported EBITDA. Bidder B waits for a QoE that removes €0.4m of owner costs that will not repeat and adds €0.3m of under-accrued warranties. Adjusted EBITDA becomes €3.3m, but net debt is €1.1m higher than management’s schedule. The headline multiple is no longer the story — the diligence adjustments are.
Buyers use diligence to decide whether to proceed, to re-cut price, or to walk. Sellers use it to control the narrative, to avoid last-minute chips, and to keep multiple bidders aligned. Lenders use it to size covenants. Private equity funds treat it as part of their duty to limited partners under industry professional standards.
Treating diligence as a legal formality. Starting it before the NDA and room are ready, then leaking drafts. Assuming a clean VDD means no further questions. Confusing accounting profit with cash generation. Leaving commercial questions to the financial team.
Diligence reduces uncertainty; it does not eliminate it. Fraud designed to hide from a time-boxed review can still pass. Forward-looking commercial claims are judgements, not audits. Scope is always a function of time, access and fees.
Fragmented diligence is expensive because every advisor rebuilds the same pack. Dazur’s model is to structure the company’s information once — then let valuation, matching and diligence read from the same layer rather than restarting the virtual data room for each counterparty.