M&A Due Diligence Checklist

DUE DILIGENCE PHILOSOPHY

Why Due Diligence Matters

DUE DILIGENCE FUNDAMENTALS

PURPOSE OF DUE DILIGENCE:
☐ Verify seller representations
☐ Identify hidden risks
☐ Validate valuation assumptions
☐ Inform integration planning
☐ Negotiate price/terms adjustments
☐ Create walk-away triggers

DD PRINCIPLES:
☐ Trust nothing, verify everything
☐ Focus on material issues
☐ Prioritize by risk/impact
☐ Document everything
☐ Escalate red flags immediately
☐ Keep timeline discipline

COMMON DD FAILURES:
☐ Too shallow (miss critical issues)
☐ Too rushed (incomplete coverage)
☐ Wrong experts (miss domain risks)
☐ Confirmation bias (ignore red flags)
☐ Poor communication (silos between teams)

DD WORKSTREAM COORDINATION:
☐ Single DD leader owns process
☐ Daily standups during intensive phase
☐ Shared issue log
☐ Clear escalation path
☐ Regular CEO/deal team updates

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COMPREHENSIVE DUE DILIGENCE

Financial Due Diligence

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FINANCIAL DUE DILIGENCE
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HISTORICAL FINANCIALS:
☐ Audited financials (3 years)
☐ Monthly P&L statements (24+ months)
☐ Balance sheets (monthly)
☐ Cash flow statements (monthly)
☐ Management accounts vs. audit reconciliation
☐ GAAP/accounting policy review

REVENUE ANALYSIS:
☐ Revenue by customer (top 50)
☐ Revenue by product/SKU
☐ Revenue by geography
☐ Recurring vs. non-recurring breakdown
☐ Revenue recognition policies
☐ Deferred revenue analysis
☐ Cohort retention analysis
☐ Pricing history and trends

PROFITABILITY ANALYSIS:
☐ Gross margin by product/segment
☐ COGS breakdown and trends
☐ Operating expense breakdown
☐ EBITDA adjustments (normalized)
☐ One-time vs. recurring costs
☐ Run-rate expense analysis

WORKING CAPITAL:
☐ AR aging and collectibility
☐ AP analysis and terms
☐ Inventory analysis (if applicable)
☐ Prepaid expenses review
☐ Accrued liabilities
☐ Net working capital calculation

DEBT & OBLIGATIONS:
☐ Debt schedules (all facilities)
☐ Covenant compliance history
☐ Off-balance sheet obligations
☐ Lease obligations
☐ Contingent liabilities
☐ Letters of credit/guarantees

TAX & COMPLIANCE:
☐ Tax returns (3+ years)
☐ Tax audits and disputes
☐ State/local tax compliance
☐ International tax structure
☐ Transfer pricing documentation
☐ Sales/use tax compliance

PROJECTIONS:
☐ Financial model review
☐ Assumption validation
☐ Budget vs. actual history
☐ Sensitivity analysis
☐ Scenario modeling

Legal Due Diligence

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LEGAL DUE DILIGENCE
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CORPORATE:
☐ Certificate of incorporation
☐ Bylaws/operating agreement
☐ Board minutes (full history)
☐ Shareholder minutes
☐ Stock ledger verification
☐ Option/warrant records
☐ 409A valuations
☐ Capitalization table verification
☐ Subsidiary/JV documentation
☐ Consents required for transaction

CONTRACTS - CUSTOMERS:
☐ Material customer contracts
☐ Standard terms review
☐ Change of control provisions
☐ Termination rights
☐ Most favored customer clauses
☐ Exclusivity provisions
☐ Warranty/indemnity exposure

CONTRACTS - VENDORS/PARTNERS:
☐ Material vendor agreements
☐ Strategic partnerships
☐ Reseller/distributor agreements
☐ Technology licenses
☐ Change of control provisions
☐ Termination exposure

EMPLOYMENT:
☐ Executive employment agreements
☐ Offer letter templates
☐ Non-compete/non-solicit agreements
☐ Assignment of inventions
☐ Independent contractor agreements
☐ Severance obligations
☐ Commission/bonus plans

INTELLECTUAL PROPERTY:
☐ Patent portfolio (filed/granted)
☐ Patent prosecution status
☐ Trademark registrations
☐ Domain names
☐ Copyright registrations
☐ Trade secret protections
☐ IP assignment chain
☐ Third-party IP licenses
☐ Open source audit
☐ IP litigation history

LITIGATION & REGULATORY:
☐ Pending litigation
☐ Threatened claims
☐ Settlement history
☐ Regulatory inquiries
☐ Government investigations
☐ Product liability claims
☐ Insurance claims history
☐ Regulatory compliance status

Technical Due Diligence

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TECHNICAL DUE DILIGENCE
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ARCHITECTURE:
☐ System architecture documentation
☐ Technology stack analysis
☐ Infrastructure diagram
☐ Cloud vs. on-premise breakdown
☐ Scalability assessment
☐ Performance benchmarks
☐ Single points of failure
☐ Data architecture
☐ Integration architecture

CODE QUALITY:
☐ Code review (sampling)
☐ Technical debt assessment
☐ Code coverage metrics
☐ Documentation quality
☐ Coding standards adherence
☐ Technology freshness
☐ Dependency analysis
☐ Build/deploy automation

SECURITY:
☐ Security architecture review
☐ Penetration test results
☐ Vulnerability assessments
☐ Security incident history
☐ Access control review
☐ Data encryption practices
☐ Compliance certifications (SOC2, etc.)
☐ Security policies review

OPERATIONS:
☐ Uptime/SLA performance
☐ Incident history and severity
☐ On-call/support processes
☐ Monitoring and alerting
☐ Disaster recovery plan
☐ Business continuity plan
☐ Backup and restore procedures
☐ Change management process

PRODUCT:
☐ Product roadmap review
☐ Feature completeness
☐ User experience assessment
☐ Mobile/cross-platform
☐ Localization/i18n
☐ Accessibility compliance

HR Due Diligence

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HR DUE DILIGENCE
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ORGANIZATION:
☐ Organization chart
☐ Headcount by function
☐ Headcount by location
☐ Tenure distribution
☐ Turnover history
☐ Open positions

COMPENSATION:
☐ Compensation summary (all levels)
☐ Bonus/commission plans
☐ Equity grants/vesting
☐ Benefits inventory
☐ 401k/retirement plans
☐ Benchmarking analysis

KEY EMPLOYEES:
☐ Key employee identification
☐ Employment agreements review
☐ Non-compete enforceability
☐ Retention risk assessment
☐ Succession planning
☐ Flight risk mitigation

COMPLIANCE:
☐ HR policies review
☐ Employee handbook
☐ I-9/work authorization
☐ EEOC compliance
☐ Safety/workers comp
☐ Pending HR issues
☐ Union/CBA agreements
☐ Contractor classification

CULTURE:
☐ Employee engagement data
☐ Glassdoor/reputation
☐ DEI metrics
☐ Manager quality assessment
☐ Cultural integration risks

Commercial Due Diligence

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COMMERCIAL DUE DILIGENCE
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MARKET:
☐ Market size validation
☐ Market growth analysis
☐ Competitive landscape
☐ Company market share
☐ Industry trends

CUSTOMERS:
☐ Customer interviews (10+)
☐ NPS/satisfaction data
☐ Reference calls
☐ Win/loss analysis
☐ Concentration analysis
☐ Churn drivers

SALES:
☐ Sales process review
☐ Pipeline analysis
☐ Win rate trends
☐ Sales cycle analysis
☐ Sales productivity

GO-TO-MARKET:
☐ Channel strategy
☐ Pricing analysis
☐ Marketing effectiveness
☐ Brand equity

Due Diligence Tracker

Workstream	Lead	Start	End	Status	Issues	Risk
Financial				☐ Not started	0
Legal				☐ Not started	0
Technical				☐ Not started	0
Commercial				☐ Not started	0
HR				☐ Not started	0
Cultural				☐ Not started	0

DD Issue Log Template

#	Area	Issue	Severity	Impact	Resolution	Status
1			H/M/L	$__		Open
2			H/M/L	$__		Open
3			H/M/L	$__		Open

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