M&A due diligence checklist: What documents to include?
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M&A due diligence is a critical step for both acquiring and target companies, but it presents its challenges. Sellers must prepare large volumes of data, manage frequent buyer requests, and limit disclosure risks. Buyers, on the other hand, face tight timelines, incomplete information, and the risk of hidden liabilities.
Nevertheless, due diligence, particularly financial due diligence, plays a crucial role in deal success. According to 40% of dealmakers, it is one of the most important factors in determining the outcome of a deal.
A well-structured M&A due diligence checklist can ease the process for both parties. For buyers, it ensures no critical detail is overlooked. For sellers, it helps present information clearly and reduces unnecessary back-and-forth.
In this article, we explore the basics of M&A due diligence, break down what a standard checklist includes, and why it is essential to a successful deal.
What is M&A due diligence?
M&A due diligence is the process by which buyers and sellers review and verify important information about a business before completing a merger or acquisition. It involves examining financial records, legal documents, operations, and other key areas to ensure there are no hidden risks or surprises.
This step is crucial because it helps buyers make informed decisions, assess the true value of the business, and identify any potential problems. For sellers, due diligence builds trust with buyers and ensures the deal goes smoothly.
In short, it’s a way to reduce risks and set the stage for a successful transaction.
What is an M&A due diligence checklist, and why is it essential for successful due diligence?
An M&A due diligence checklist (also known as a merger and acquisition due diligence checklist) is a detailed list of documents a buyer requests from a seller during the due diligence stage.
Before due diligence begins, an acquiring company prepares a due diligence checklist listing all the documents they want to review. This ensures the target company has all the necessary information prepared, and the buyer has access to it. As a result, this accelerates the deal timeline, benefiting both sides.
You can structure the M&A due diligence checklist documents by investigation areas, including but not limited to:
- Legal
- Financial
- Intellectual property (IP)
- Sales
- General corporate information
- Tax information
- Human resources data
- Property and equipment
- Marketing
Key M&A due diligence steps
The M&A process slightly differs depending on whether it involves a public or private company. However, the key steps of the due diligence process typically include:
- Handling initial issues
This involves defining the deal type (vertical or horizontal merger, etc.), its nature (hostile takeover or merger of equals, etc.), the parties involved, deadlines, and the expected end product. - Building the due diligence team
At this stage, the buy-side assembles a team of specialists in such areas as law, real estate, intellectual property, environmental audits, HR, etc. - Submitting the due diligence request
The buy-side submits a due diligence request and shares the due diligence checklist with the sell-side. - Distributing and organizing the documents
All the data required for the M&A due diligence process is prepared and organized according to the due diligence checklist requirements. At this stage, parties also define the way data will be shared and whether any hardware is needed. One common option is a virtual data room (VDR). - Cooperating on the due diligence findings
This step involves defining the channels and processes of cooperation between the buy-side and sell-side during due diligence, if such cooperation is necessary. - Reviewing the key sources of information
This step involves reviewing critical information such as SEC filings or regulatory compliance documentation (e.g., SOC compliance). - Proceeding with additional specialist’s review if necessary
For certain document reviews, outside specialists’ consultation might be required. This is especially applicable to various legal documents or intellectual property findings.
How long does M&A due diligence take?
Due diligence in mergers and acquisitions typically takes between 30 to 90 days, depending on the deal’s complexity and the size of the business.
Smaller or more straightforward deals may take less time, while larger or more complicated transactions can take longer. The timeline also depends on how quickly both parties provide and review the required information.
Team behind due diligence in M&A
On the buy-side, a successful due diligence process depends on a team of specialists, each focused on a specific area of the target company. Their combined efforts help uncover risks, confirm deal value, and support informed decision-making.
Here are the core specialists of a great M&A due diligence team:
- Legal team
Responsible for reviewing contracts, corporate governance documents, ongoing or past litigation, intellectual property rights, and regulatory compliance. Their role is to identify any potential legal risks that could impact the deal or lead to future liabilities. - Financial experts
Usually made up of accountants and financial analysts who dive into historical financial statements, balance sheets, tax records, and audit reports. They verify the company’s financial health, spot inconsistencies, and evaluate whether the business is as valuable as it appears. - Tax advisors
Examine the company’s tax history, filings, and compliance with local and international regulations. Their role is to identify any unpaid taxes, future liabilities, or structural tax issues that could affect the buyer after the deal closes. - HR specialists
Focus on employee-related matters, including compensation plans, employment contracts, non-compete agreements, benefit programs, and potential labor disputes. They help the buyer understand workforce quality, retention risks, and integration needs. - IT and cybersecurity professionals
Assess the strength and stability of the target’s IT infrastructure, software systems, and cybersecurity protocols. They look for outdated systems, vulnerabilities, and any risks that could affect operations or data integrity. - Industry specialists
External experts may be brought in to review niche or industry-specific issues such as environmental compliance, product certifications, or healthcare regulations. They help the buyer evaluate risks that general analysts might miss. - Integration team (optional)
Some buyers include post-merger integration specialists to plan how the acquired company would be merged into existing operations. They perform operational due diligence to determine operational overlap and assess cultural fit and synergy opportunities early in the process.
On the sell-side, internal teams, often led by legal, finance, and operations departments, are responsible for preparing requested documents, organizing files in a secure virtual data room, and responding to buyer questions. Their cooperation helps ensure transparency and keeps the deal on track.
Together, both sides play critical roles in making due diligence efficient, thorough, and aligned with the timeline of mergers and acquisitions transactions.
M&A due diligence checklist example
Typically, before any deal, an acquirer creates the M&A due diligence checklist template to use during the upcoming due diligence process.
Below, we offer an example of a checklist to use when drafting one for your upcoming deal.
List of due diligence documents for M&A: Key 8 areas
You should focus on the following information while conducting due diligence:
1. General information
Buyers collect general corporate records to familiarize themselves with target businesses.
| Area | Documents |
| Organizational documents | Organizational chart Articles of incorporation and corporate structure documents Restructuring and reincorporation documents Certificate of Good Standing List of authorized jurisdictions List of subsidiaries, partnerships, and joint ventures List of the company’s shareholders Agreements related to preemptive and registration rights Management and ownership structures |
| Business materials | Business plans and board packs Annual reports for the last three to five years Corporate bylaws and their specifications |
2. Legal due diligence
During legal due diligence, companies collect legal documents to eliminate the litigation risks and the risks of inheriting legal issues of acquired businesses. Often, sides involve a law firm for professional assistance.
Also read: How to conduct effective legal due diligence with a legal due diligence checklist.
| Area | Documents |
| Legal disputes and litigation | Concluded, active, pending, or threatened litigation against or initiated by the target company Judgments, injunctions, consent decrees, governmental investigations, including any antitrust or regulatory inquiries involving the target company Copies of all settlement documents related to the company or its subsidiaries |
| Agreements and material contracts | Company contracts and consulting agreements Franchise and licensing agreements Copies of all guarantees provided to or by the target company Indemnification agreements and contingent liabilities Auditor’s correspondence and corporate attorneys’ letters to auditors |
| Loans and obligations | Copies of all security agreements, mortgages, letters of credit, contingent obligations, and leases Copies of all outstanding letters of credit and other bonds List of all banks, creditors, lenders, or guarantors a target company deals with All documents relating to outstanding debt, indemnification, guarantee, or other agreements |
3. Accounting and financial
Financial due diligence helps verify whether acquiring a company will be profitable for your business in the long run. Reviewing the information below helps buyers understand the target’s financial health before committing to the transaction.
Also read: Explore the importance of a financial due diligence checklist during financial due diligence.
| Area | Documents |
| Financial documents and income statements | Market capitalization and equity documents, including stock purchase agreements, balance sheets, cash flow statements, and deferred revenue Three years of unaudited and audited financial statements Budget plans, including operating and capital budgets Copy of the general ledger, including accounts payable and accounts receivable Bank statements for all business accounts |
| Control methods and material agreements | List of internal control procedures Insurance coverage Insurance policies and audit reports Accounting methods, including amortization and depreciation methods, for the past five years Credit agreements, including lines of credit and loans |
| Tax information | Tax structure and tax returns for the last three years Copies of all tax sharing, transfer pricing, or tax benefits agreements Description of all tax audits involving the target company for the last three tax years Statements of property taxes paid by the target company Government audits |
4. Sales and marketing
Buy-side companies collect sales and marketing due diligence documentation to ensure that the target company can generate forecasted profits.
| Area | Documents |
| Customer insights | List of top active and former customers with revenue records Customer analysis Copies of material customer contracts and long-term sales contracts Records and summaries of warranty claims |
| Marketing insights | List of top suppliers, distributors, and resellers Market research records Marketing agreements, sales and marketing strategies, plans |
| Products and advertising materials | List of existing and unreleased company products and services Advertising materials, including sales sheets, press releases, brochures, and TV commercials Sales analytics |
5. Human resources
Human resources due diligence documents help determine a target company’s key talents and integration opportunities.
| Area | Documents |
| Employee insights | Current employee demographics CVs of key employees Employee benefits and handbooks |
| HR contracts | Non-disclosure, non-compete, and non-solicitation agreements Employee skills and competence evaluations Employment contracts Payroll documents, deferred workers’ compensation plans, and pension plans HR policies and practices Labor disputes |
6. Intellectual property
Conducting due diligence on the target company’s intellectual property structures its IP portfolio and ensures there are no hidden IP rights issues.
Also read: Get the IP due diligence checklist and explore the best practices for IP due diligence.
| Area | Documents |
| Patents and software | Patents, patent applications, proprietary software and IT systems, trade secrets, and their descriptions Copies of patent research and development, licensing, and collaboration files Licensing revenues and expenses |
| Ownership information | Trade names, trademarks, and copyrights (both material and unregistered) Chain of title records List of websites and social media accounts |
| IP protection information | Documents regarding IP protection measures Claims and threats around IP |
7. Property and equipment
Property due diligence helps you verify the target company’s tangible physical assets to determine the acquisition value.
| Area | Documents |
| Company’s property audits | Copies of inventory listings at the end of the fiscal month and year Documents regarding inventory storage practices Lists of leased and owned properties, real estate, and fixed assets with specifications (date acquired, location, cost, etc.) |
| Legal information | Equipment leases and property deeds Copies of equipment appraisals UCC filings |
8. Strategic fit assessment
Strategic fit due diligence helps a buyer understand the target company’s total value and determine whether the deal is profitable in the long run. You should decide whether the target company fits your strategic plans by evaluating due diligence findings in other areas.
To do so, evaluate the following:
- Acquisition value drivers, including technology, markets, products, and intellectual property
- Assessments of marginal costs following the company’s acquisition
- Evaluations of synergies in sales, management, production, and other areas
- Review of acquisition risks
- Availability of complementary products to the buyer’s products
How to collect due diligence documents?
Businesses employ a step-by-step approach for collecting due diligence documentation:
- Time frame negotiations
You should decide on approximate due diligence deadlines and discuss guidelines for emergencies. - Team formation
Delegate document collection to accountants, attorneys, and M&A experts. Each due diligence team might follow a dedicated due diligence checklist for acquisition in financial, legal, marketing, and other investigation fields. - Document collection
Collaborate with sell-side teams, send request checklists, and collect documents in a virtual data room. - Findings evaluation
Carefully analyze due diligence findings to minimize overlooked benefits and potential risks of the upcoming merger or acquisition.
Common pitfalls of M&A due diligence
Here are three of the most common mistakes to avoid during M&A due diligence:
1. Treating document collection as a simple audit
According to the Bain M&A Report 2024, about 65% of buyers claim that a gap in valuation expectations affects deal outcomes. This often originates from improper, rushed investigations and misleading conclusions about business sellers.
It happened to Bank of America, which lost over $50 billion due to the collapsing mortgage market and fraud settlement after acquiring Countrywide Financial.
You can avoid such scenarios by emphasizing and evaluating the deal’s benefits and risks discovered during the due diligence process.
Completing checklists for due diligence is crucial, but the whole process is a deep analysis of the target company, not a simple audit.
2. Failing to involve industry experts
It’s okay if your compliance team lacks experience in all dedicated due diligence areas. However, you might risk overlooking critical issues if you delegate due diligence document collection to general analysts.
Instead, hire third-party professionals to compensate for your team’s knowledge gaps.
3. Failing to recognize inapplicable documents
There is no one-size-fits-all approach to collecting due diligence documents, even though it might seem that way when using comprehensive due diligence checklist templates.
You can use them as a reference to set the due diligence direction and speed up the process by developing organization-specific M&A checklists. Otherwise, you may end up reviewing irrelevant documents.
Ideals VDR for M&A due diligence
Ideals virtual data room (VDR) is the go-to solution for buyers and sellers conducting due diligence.
The due diligence process involves a lot of sensitive document sharing, which is why a high level of data security is paramount.. Ideals allows not only for the secure storage and sharing of large volumes of data but also ensures security with various measures and granular access controls.
Source: Ideals
Besides that, Ideals virtual data room for due diligence allows buyers and sellers to:
- Track user activity
Ideals allows users to monitor which documents buyers engage with most, enabling proactive communication. - Establish effective collaboration
The Q&A functionality facilitates real-time communication between the buy-side and sell-side teams. - Streamline document review
Features such as drag-and-drop upload, automatic indexing, bulk user invitation, advanced search, and smart search enhance document management efficiency. - Optimize due diligence checklist management
Ideals enables due diligence checklist uploads and ensures accurate file versioning, aligning all involved parties. - Close deals faster
By leveraging Ideals VDR, both buyers and sellers can work more efficiently, leading to faster deal closures.
Key takeaways
- The M&A due diligence checklist is a critical tool for organizing and reviewing essential documents during the due diligence stage of mergers and acquisitions.
- The M&A due diligence checklist ensures no critical data is missed, significantly boosting the chances of a successful deal closure.
- The contents of the due diligence checklist depend on the type of deal, its objectives, and the parties involved. The typical areas of documents to add to a due diligence checklist include financials, human resources information, marketing and sales materials, tax information, legal documents, and more.