The Ultimate M&A Due Diligence Checklist: Key Areas Every Buyer Must Inspect.

Mergers and acquisitions are exciting. Whether you're buying a fast-growing startup or a well-established business, the possibilities look endless. The numbers on the surface may look strong, the brand might have buzz, and the leadership team seems impressive. But beneath that polished pitch lies the real question every buyer should ask—what am I actually buying?

This is where M&A due diligence comes in. In plain terms, due diligence is the process of thoroughly inspecting a business before you commit to acquiring it. It’s like running a full-body scan on a company—checking the financial health, legal risks, tax exposure, operational backbone, team structure, technology, and even cultural fit. The goal is simple: to make sure there are no unpleasant surprises after the deal is done.

Why is this so important? Because deals don’t usually fail at the negotiation table. They fail after the acquisition, when hidden issues come to light—like unpaid taxes, lawsuits in the pipeline, customer churn, or a key tech system that no one really knows how to operate. These are the things that can quietly erode the value of your investment.

In this blog, we’re going to break down the ultimate M&A due diligence checklist. We’ll walk through the ten key areas every buyer must inspect before signing on the dotted line—no jargon, no corporate fluff, just real insights you can use.

The ultimate M&A due diligence checklist helps buyers evaluate finance, legal, people, and market risks before acquisition.

 1. What Financial Documents Should You Review First?

This is where most buyers start—and for good reason. The financials are the heartbeat of any business. If they don’t hold up under scrutiny, it doesn’t matter how great the brand or product looks.

Start with the basics: audited financial statements from the past three to five years. Look at revenue trends, profit margins, EBITDA (earnings before interest, tax, depreciation, and amortization), and cash flow. But don’t stop there. A smart buyer goes deeper.

Check whether the revenue is recurring or one-time. Is the company earning steady income through long-term contracts, or is it surviving on project-based work? A business that books ₹10 crore this year from a one-off government contract is very different from one that earns ₹8 crore consistently through monthly subscriptions.

Also, watch out for “normalised EBITDA” claims. Founders love to remove one-time expenses to make profits look better. Ask questions. What are these adjustments? Are they really non-recurring, or just convenient exclusions?

Don’t forget the working capital position, outstanding debt, and off-balance-sheet liabilities. And always reconcile reported cash with actual bank statements. Sounds basic, but you’d be surprised how often numbers don’t match.

In short: Don’t just ask “How much money are they making?” Ask “Where is it coming from, and can it continue?”

 2. Why Legal Due Diligence Can Save You from Nasty Surprises

Let’s be honest — legal stuff isn’t the most exciting part of an M&A deal. But it can be the part that saves you millions. Or saves your future self from waking up in court.

Legal due diligence is about checking if the business you're buying is clean — no hidden lawsuits, no shady contracts, no intellectual property that’s secretly owned by someone else. Basically, you’re making sure what they claim to own, they actually do own — and that it’s free from legal drama.

Start by reviewing all major contracts: customer agreements, vendor deals, employee contracts, leases, franchise agreements, you name it. Are there any clauses that could be a problem after the acquisition? Any non-compete agreements or change-of-control triggers that kick in if the company is sold?

Next, check for ongoing or past litigation. Even a minor court case can be a red flag if it’s been going on for years or could set a legal precedent.

One big area buyers often forget? Intellectual property. If the core product relies on software, designs, patents, or even trade secrets — make sure the company really owns them. And that the IP isn’t tied to a co-founder who quietly walked away two years ago.

In short: legal due diligence isn’t about being suspicious. It’s about being smart. Because once the deal is signed, those problems are yours.

3. Commercial & Market Due Diligence: Is This Business Actually Worth It?

Let’s step away from contracts and compliance for a second. Because here’s a hard truth: even if a company is legally spotless, it doesn’t mean it’s a good business. That’s where commercial and market due diligence comes in — the part where you figure out if this business makes sense in the real world.

You’re basically asking, “What’s the company’s place in the market? Is it future-ready, or is it coasting on borrowed time?”

Start with the customers

Say you’re looking to acquire a SaaS company that helps hospitals manage patient data. On paper, the revenue looks solid. But once you dig deeper, you realize that 70% of their income comes from just two hospital chains — both of which are in talks with a new competitor.

That’s a huge red flag.

You want to look at how many customers they have, how long they’ve stayed, and what the churn rate is. Are customers sticking around because they love the product? Or because there’s a long-term contract with no exit option? There’s a difference — and it affects future cash flow.

Look at the market landscape

Let’s take another example: imagine a company that manufactures diesel generators. Great margins, loyal clients, reliable suppliers.

But… the country just announced a massive push for solar and clean energy. In three years, demand for diesel generators might plummet.

That’s why you need to zoom out and understand the market trends. Is the industry growing or slowing? Are there new technologies or regulations that could change everything? How do these macro trends impact your potential investment?

Who are the competitors?

A good business isn’t just good in isolation — it needs to be better than the others in its space.

Suppose you're buying into a food delivery app in Tier 2 Indian cities. It may seem exciting until you realise Zomato and Swiggy just launched an aggressive local campaign in the same towns, with 10x the marketing budget. Can this company compete — or will it get squeezed out?

Your job during commercial due diligence is to map out that competitive landscape and figure out where the company stands. Does it have a niche or unique advantage? Or is it surviving because the big players haven’t noticed it… yet?

Check revenue sources

Diversification matters more than you think. For example, if a toy company makes 80% of its revenue from a single licensing deal with Disney — and that deal ends in a year — you’re in trouble.

Smart buyers ask: how many different ways does this company earn money? Are those revenue streams stable, or seasonal? Do they rely too much on one market or client? If one stream dries up, what’s the backup?

In short: Commercial and market due diligence isn’t about what’s happening inside the company. It’s about what’s happening around it — the customers, the competitors, and the world it operates in. You’re not just buying today’s numbers… you’re betting on tomorrow’s potential.

4. Financial Due Diligence: Are the Numbers Telling the Truth?

Alright, now we get to the part where many deals are made or broken: the financials.

Financial due diligence is like switching on the lights in a house you’re about to buy. On the outside, it might look polished — but once you’re inside, you’ll see if there are cracks in the walls or termites in the woodwork.

You’re trying to answer two basic but powerful questions: 

Is this business financially healthy? And can I trust what I’m seeing on paper?

Look beyond the shiny topline

Imagine a company proudly showing off its ₹500 crore revenue. Impressive, right?

But then you peek behind the curtain and discover that ₹300 crore of that came from just one order… that’s not likely to repeat.

Or worse — they’ve been delaying vendor payments to artificially boost cash flow.

That’s why quality of earnings matters more than the amount. You want to know: 

– Is this revenue recurring or one-time? 

– Are the profit margins sustainable? 

– Are there any cooked-up numbers hiding in plain sight?

Audit trail: Trust but verify

Don’t just take the internal reports at face value. Always ask for audited financials — and then cross-check.

For instance, maybe the P&L looks healthy, but the cash flow tells a different story. (Tip: profitable companies can still go bankrupt if they don’t manage cash well.)

You’ll want to zoom into: 

– Cash vs. accrual accounting 

– Any unusual loans or related party transactions 

– High receivables (customers not paying up on time = future risk)

Watch for “creative” accounting

Some red flags are subtle.

Like a company suddenly reclassifying operating expenses as “capital expenditure” to boost profits. Or stashing liabilities in off-balance-sheet entities (remember Enron?).

A real example: A tech company once reported rising EBITDA — but when someone bothered to look closer, they found ballooning software license costs pushed into future years. It wasn’t fraud, but it painted a rosier picture than reality.

Due diligence here is about being financially skeptical — without being paranoid.

Also, check tax positions and contingent liabilities

Imagine closing a deal, only to find out six months later that the company has a pending ₹50 crore tax dispute that could go either way. Ouch.

You want to know: 

– Are there any unresolved audits or notices from tax authorities? 

– Any lawsuits or penalties on the horizon? 

– What’s the worst-case liability if things go south?

Think of it this way — financial due diligence doesn’t just help you validate the price you’re paying. It helps you predict the problems you might inherit.

5. People & Talent Due Diligence: Who’s Really Running the Show?

Let’s be honest — even the best business models can crumble without the right people behind them. And on the flip side, a passionate, capable team can make a flawed model fly.

That’s why in any due diligence process, understanding the people isn’t just important — it’s non-negotiable.

 Why it matters

In a deal, you’re not just buying tech, assets, or customers — you’re often banking on the founders, key executives, and core team to take the business forward.

So, ask yourself:

• Are the leaders aligned with the company’s long-term vision?

• Will they stay on after the deal, or are they looking for an exit?

• Do they have what it takes to scale this company further?

Real-world example

A mid-sized logistics company looked great on paper — strong revenue, growing client list, and decent margins. But when investors dug deeper, they realised the operations head (who basically ran the entire supply chain) was planning to leave.

His exit would have meant a complete collapse of service levels. The deal was paused — not because of the numbers, but because of the people risk.

 What to look for during people due diligence:

Here’s a quick checklist to make sense of the talent landscape:

1. Founder/CEO commitment – Are they in it for the long haul? Or already halfway out the door?

2. Second line of leadership – Is there depth? Or is everything dependent on one or two people?

3. Org structure – Is it clear, logical, and scalable?

4. Attrition trends – Is the company bleeding talent? Why?

5. Culture scan – What’s the energy like inside? Toxic? Burned out? Or thriving?

And yes, LinkedIn can be a goldmine. Track leadership movements. Look for key employees who’ve recently quit. It often signals deeper issues.

 In a nutshell

You can buy the building, the brand, and the balance sheet — but if the right people walk out the door post-deal, you’re left holding an empty shell. Talent isn’t just part of the deal — it is the deal. So, double-click on leadership, dig deep into culture, and make sure the people you’re betting on are actually in the game for the long run.

Our Directors’ Institute - World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organization.