An acquisition due diligence checklist for owners and boards

Most acquisitions that disappoint do not fail at signing. They fail months later, when an assumption nobody tested turns out to be wrong. Due diligence exists to find those assumptions early, while there is still leverage to price them, protect against them, or walk away.

Start with the thesis, not the data room

Before opening a single file, write down why this deal creates value in three or four sentences. Every diligence question should trace back to one of those sentences. If a workstream cannot be linked to the thesis, it is either a risk check or noise.

Commercial diligence

• Who are the top customers, and what share of revenue do they represent?
• Why do customers buy, and what would make them leave after a change of ownership?
• How large is the reachable market, and is it growing, flat or shrinking?
• Who are the realistic competitors, and how are they likely to respond to the deal?

Financial diligence

• Is reported earnings quality supported by cash flow?
• Which adjustments to earnings are recurring costs in disguise?
• What does normal working capital look like across a full year?
• Are there off-balance-sheet obligations, guarantees or contingent liabilities?

Operational diligence

• Which processes depend on a single system, supplier or person?
• What capital spending has been deferred, and what will it cost to catch up?
• Can the business absorb the growth the thesis assumes without breaking?

People and governance

• Which individuals carry key relationships or knowledge, and will they stay?
• Are contracts, licences and permits transferable on a change of control?
• Is there pending or threatened litigation?

Turn findings into decisions

Each material finding should end in one of four outcomes: adjust the price, adjust the structure, add contractual protection, or stop. A finding that does not change one of those is useful context, not a decision.

Legal, tax and accounting questions should go to qualified professionals in those fields. The value of a strategic lens is in connecting their findings back to the thesis.