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Surviving the M&A due diligence process

The due diligence process is somehow both stressful and tedious. Make the process easier with these four survival steps.
M&A due diligence

You built your startup from the ground up. After months, maybe years, of skipping weekends, paychecks, and restful nights, you’ve managed to create a valuable business. Your customer base is growing, you’ve hired employees, and now someone has offered to buy your business. You’ve made it — maybe. That offer is attractive, and it may be life-changing if the deal goes through. But first, you must survive the M&A due diligence process.

What is the M&A due diligence process?

Similar to the investor due diligence process, the M&A due diligence process is the opportunity for a buyer to confirm that your company is indeed the promising asset they think it is.

While M&A due diligence and investor due diligence are similar, the stakes are much higher for the buyer of your business. Yes, the buyer wants a return on investment, and they certainly want to know the risks associated with your business. But more importantly, the buyer must run your business after the acquisition is completed. After the deal closes, the buyer becomes responsible for your business. That includes the good, the bad, and the ugly.

The M&A due diligence process gives the buyer an opportunity to go over your business with a fine-toothed comb. It exposes risks, operational deficiencies, and anything else that they will be responsible for after the deal closes.

If the risks or deficiencies are more than the buyer bargained for, it could cause serious complications. These can include a lowered purchase price or a broken deal. It could also mean being held contractually responsible for certain aspects of the business after ownership transfers.

So, how do you survive a buyer tearing through your entire business and challenging every aspect?

Four steps for surviving the M&A due diligence process

The due diligence process is somehow both stressful and tedious. Break up the emotional and actual work by dividing it into four steps.

1. Set your expectations

Make sure that you and your team understand that the process takes time. The workload requires you to shift your attention away from the day-to-day business, and you’ll need to take a step back and look at M&A due diligence from the buyer’s perspective.

M&A due diligence is a long process. Prepare yourself and your teams before you get started. Nate Nead, CEO of, observes that the M&A due diligence generally takes 60 to 90 days to complete. Compare that to the fundraising due diligence, which only takes around a month. Nead qualifies that range by stating that 90 days is the goal. Due diligence can actually take much longer, but after 90 days, Nead finds the process starts to sour the deal.

Your workload shifts completely away from business as usual during M&A due diligence. As the due diligence exercise unfolds, your team can expect daily responsibilities to change. This can mean joining daily calls and answering one-off questions on a seemingly nonstop basis. Until that closing date finally passes, a normal business day is unlikely to occur.

2. Prepare your documentation

M&A due diligence is a document-heavy exercise. Whether your buyer is looking for information on finances, human resources, sales, or compliance, the information of interest usually lies in a document somewhere in your business.

To ensure you’re preparing the right documents for M&A due diligence, use our document checklist as a guide. Once you’ve started gathering the appropriate documentation, organize the documents in a single, electronic location where the buyer can easily find the documents to review. Your buyer and their advisors will expect this documentation to be provided in a data room, where documents are easily uploaded, searched, and organized.

Once you have the data room set up through a platform like DocSend, keep the data room updated as the buyer asks for additional information and clarifications. When the deal closes, the data room should have each and every document that you provided and the buyer reviewed to evaluate and help close the deal. Not only will due diligence documentation keep you organized through M&A due diligence, but it will also help you transition the business to the buyer as they rely on this documentation to run the business post-close.

3. Select a team

As the CEO who needs employees to keep working their day jobs, there’s a temptation to keep the M&A offer to yourself or share with as few people as possible. But you can’t produce all the information necessary or answer all the M&A due diligence questions yourself. You’ve run a successful business, but your main role is managing people and the big picture. M&A due diligence requires knowledge of the tiniest details of your business, and you need a team to identify and produce those details.

When building your M&A due diligence team, pair functional experts from your business with functional experts from the buyer. Introduce your HR executives to their HR executives, finance to finance, sales to sales, etc. Specialists speak a common language. They can help each other identify the information needed and how to interpret it as it pertains to your business.

Consider an example. Assume the buyer requests your sales tax receipts for the past five years. Surely those are stored somewhere in the tax department files, right? You conduct a search but don’t find anything. You report back to the buyer that you have no sales tax receipts. That answer could sound alarms in the buyer’s tax department. Could the target business, your business, be delinquent on taxes? How much in back taxes will be owed? What about late penalties?

However, if you let your finance or tax department handle this due diligence request, they might be able to easily explain that your business is exempt from collecting sales tax for certain reasons. Instead of wasting time searching for documents that don’t exist and unnecessarily causing concern for the buyer, the right contacts in your business could have solved this problem before it became one.

The quicker you connect experts from both companies, the better you will answer the buyer’s questions, and the smoother M&A due diligence will go.

4. Reduce stress and give a little

Throughout M&A due diligence, always remember the goal. Share that goal with your due diligence team. Whether it’s an exit strategy, more resources to apply to the business, a larger customer base, or something else, keep everybody focused on the goal.

The nature of due diligence exposes the weaknesses of your company. The buyer may even be forced to reduce the offer based on these weaknesses. Brett Dearing, former senior director at BNY Wealth Management, explains that the original acquisition offer price is typically reduced by 10-30% due to issues found in due diligence. These purchase price adjustments can stem from anything, including improperly paid employees, outstanding legal claims, misfiled taxes, or even anticipated future litigation.

Purchase price reductions aren’t necessarily deal killers. But that doesn’t mean it isn’t difficult to endure. Prepare yourself for these conversations, push back when the reduction is unwarranted, and keep the bigger picture in mind as you go through the process.

Finally, M&A due diligence is stressful. Your entire business is put under the buyer’s business microscope. Find an avenue to relieve or manage this stress to make it through the process. Micah Rosenbloom, a managing partner at Founder Collective, authored a Crunchbase post that laid out a number of ways to reduce stress throughout acquisitions. Potential steps include hiring outside advisors, identifying your lowest-possible selling number beforehand, and guarding your team from the stress of due diligence. But perhaps his most important advice to founders encouraged them to keep their perspective:

“The economics of many [venture capital] funds require billion dollar exits. The economics of founders’ lives do not, so don’t let your investor’s business model drive irrational behavior in…selling. Remember that selling a company for $30 million can sometimes lead to better returns for the founder than selling for 10X as much.”

Surviving M&A due diligence will take endurance. Prepare yourself for the negatives, and be willing to give a little to reduce stress and keep the deal alive.

Make the due diligence process easier

M&A due diligence may be one of the hardest things you do as a business owner, second only to launching the business in the first place. But if the right buyer is interested in your business, surviving the due diligence process and closing the deal can be one of the most rewarding experiences of your life.

Use DocSend Spaces to help your team stay organized and to securely share important documents. That way, you can concentrate on running a smooth process and making the deal.