An acquisition business plan is vital if you are planning to acquire a business. However, conducting a thorough and unbiased assessment of a business’s value, performance, and risks is equally necessary. This is what buy-side financial due diligence is all about. In this article, you will learn the meaning of buy-side due diligence, why it is critical, how to conduct it, and a checklist.

What Is Buy-Side Due Diligence?

Buy-side due diligence is the process of investigating and analyzing the financial aspects of a target company before making an acquisition offer. Due diligence in mergers and acquisitions involves reviewing the target’s financial statements, tax returns, contracts, leases, debt obligations, litigation, and other relevant documents.

The main objectives of buy-side M&A due diligence are to:

  • Validate the target’s historical and projected financial performance and cash flows.
  • Identify and quantify the target’s assets and liabilities.
  • Assess the target’s quality of earnings report, working capital, and capital expenditures.
  • Evaluate the target’s financial risks and litigation.
  • Determine the target’s valuation and synergies with the acquirer.

A team of financial experts, such as accountants, auditors, lawyers, and bankers, conducts buy-side vs sell-side due diligence and works closely with the acquirer’s management and advisors to gather and analyze the relevant information.

Why Is Buy-Side Due Diligence Important?

According to Bain’s 2020 Global Corporate M&A Report, poor due diligence caused 60% of deal failures in M&A. Buy-side due diligence is crucial for any acquisition. It enables the acquirer to:

  • Pay a fair price for the target and avoid unprofitable or unstable businesses.
  • Detect and reduce any financial risks or liabilities.
  • Bargain for favorable deal terms and conditions.
  • Implement the post-acquisition integration.
  • Accomplish the acquisition’s strategic and financial objectives.


Buy-side diligence makes the acquirer stand out from other buyers because it shows the acquirer’s commitment, skill, and reliability. It also helps the acquirer establish trust and rapport with the target’s management and stakeholders, which can expedite the deal.

Buy-Side Due Diligence Process

Here is an overview of the typical process for conducting buy-side due diligence:

Step 1: Prepare and send out an initial due diligence request list – The buyer will prepare a comprehensive list of items and information they want from the target company. This usually includes financial statements, tax returns, customer contracts, employee information, intellectual property details, etc.

Step 2: Review documents provided by the target – The buyer reviews all the documents and information provided by the target company which allows them to start gaining an understanding of the target’s business operations, financial health, risks, and growth potential.

Step 3: Conduct site visits and management meetings – The buyer will often visit the target company’s facilities, stores, or offices to make observations and meet with management teams. This provides additional insights that may not come across in documentation.

Step 4: Perform financial modeling and analysis – The buyer builds financial models to analyze the target’s historical performance, trends, profit drivers, and risks. This includes analyzing financial ratios, growth rates, working capital needs, and cash flow.

Step 5: Conduct industry research and competitive analysis – Research is conducted on the target’s industry, competitors, market share, competitive advantages, and industry trends. This provides context for evaluating the target’s position and prospects.

Step 6: Assess potential risks and red flags – The due diligence team summarizes potential legal, financial, operational, IP, or other risks uncovered in the process. Any red flags or warning signs about the viability or valuation of the target are highlighted.

Step 7: Summarize findings in a due diligence report – The team compiles all findings, analyses, and assessments into a report. This summarizes the target’s value proposition, growth outlook, and risks for the buyer as they finalize the acquisition decision.

Step 8: Negotiate final price and deal terms – The buyer uses the findings to inform negotiations with the seller about the final purchase price and deal terms before closing the acquisition. Information uncovered in due diligence gives them negotiation leverage.

Operational and Strategic Planning
This deliverable will contain a business development road map that will help the company achieve its goals and become a market leader.

Buy-Side Due Diligence Checklist

A buy-side due diligence checklist is a list of items that a buyer needs to verify before acquiring a target company or business. The checklist helps the buyer evaluate the value, risks, and opportunities of the deal, and avoid surprises after the transaction.

Different deals need different levels of scrutiny and analysis, so there is no standard template or sample for a buy-side due diligence checklist. However, some common categories of items are:

1. Financial Due Diligence

Checking the historical and projected financial performance, position, and cash flows of the target company, as well as its accounting policies, practices, and controls. Some of the items that you should check are:

  • Revenue, cost, margin, and profitability trends and drivers
  • Assets, liabilities, equity, and working capital levels and movements
  • Cash flow generation and utilization
  • Capital structure, debt, and financing arrangements
  • Budgets, forecasts, and assumptions
  • Accounting policies, standards, and adjustments
  • Financial reporting, auditing, and internal controls

2. Commercial Due Diligence

Checking the market position, competitive advantage, and growth potential of the target company, as well as its products, services, customers, and suppliers. Some of the items that you should check are:

  • Market size, structure, trends, and dynamics
  • Competitive landscape, strengths, weaknesses, and differentiation
  • Products and services portfolio, features, quality, and pricing
  • Customer segments, profiles, needs, preferences, and satisfaction
  • Customer retention, acquisition, and loyalty
  • Supplier relationships, contracts, terms, and performance
  • Marketing and sales strategies, channels, and effectiveness

3. Operational Due Diligence

Checking the operational efficiency, effectiveness, and scalability of the target company, as well as its processes, systems, and resources. Some of the items that you should check are:

  • Production and service delivery processes, methods, and standards
  • Operational performance, productivity, and quality metrics and indicators
  • Operational risks, issues, and challenges
  • Operational improvement and optimization initiatives and plans
  • Technology systems, infrastructure, and security
  • Human resources, organization, culture, and skills
  • Facilities, equipment, and inventory

4. Strategic Due Diligence

Checking the strategic direction, vision, and goals of the target company, as well as its alignment and fit with your strategy and objectives. Some of the items that you should check are:

  • Mission, vision, values, and culture 
  • Strategic goals, objectives, and priorities 
  • Strategic analysis, planning, and execution 
  • Strategic opportunities, threats, and challenges 
  • Strategic synergies and value creation opportunities
  • Strategic integration and implementation plan

If you need professional and reliable assistance in conducting buy-side commercial due diligence, OGSCapital can help. We are a team of proficient business plan writers and M&A experts. Our experts can conduct a comprehensive and rigorous buy-side due diligence for you and ensure that you make the right deal at the right price. Contact OGSCapital today for expert assistance for your due diligence project.

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    Frequently Asked Questions (FAQ)

    What is the M&A process?

    The M&A process is the sequence of steps involved in merging or acquiring a company, from planning and research to closing and integration. It typically involves developing an acquisition strategy, identifying and contacting potential targets, performing valuation, negotiating terms and prices, and finalizing the deal.

    What does a buy-side M&A analyst do?

    A buy-side M&A analyst works for the buyer in the deal and is responsible for finding and evaluating potential acquisition opportunities, contacting and pitching offers to target companies, conducting financial analysis and valuation, and assisting with the deal execution and integration.