Ultimate Guide for Due Diligence Questions for M&A

Due diligence is a fundamental part of the transaction due diligence process, yet many investors, managers, and advisors have scant familiarity with what it entails. Few know the true role of due diligence questions in M&A transactions and why they are important. Here is an ultimate guide covering essential due diligence questions for M&A.

Financial Questions

Ask the following questions to help you evaluate the target company’s financial health and assess whether or not a deal is worth pursuing.

What Are the Company’s Financial Statements Over the Last Five Years?

The income statement, balance sheet, and cash flow statement can each provide different insights into a business’s overall financial health.

What Are the Company’s Main Sources of Revenue?

Get at the heart of what the company does, how it makes money, and how much it makes. You also get to understand what kind of customer base they have and who their most important customers are.

What Is the Company’s Debt Load?

A large debt load can place unnecessary pressure on the company and make it difficult for them to grow, so it’s important to know your potential acquisition target’s debt load.

What Is the Company’s Expected Financial Future?

Understand how your potential partner plans to grow in the coming years so that you can ensure it’s a good fit for your own growth plans.

Legal Questions

Legal questions are a great way to understand the legal issues of a potential acquisition.

Is the Company Involved in Any Current or Past Legal Disputes?

You don’t want to get involved in any lawsuits that are already happening or purchase a business that’s been sued in the past.

Does the Company Own Crucial Intellectual Property?

When purchasing a company, ensure that the company owns the crucial intellectual property (IP). If there is any dispute over IP, you may commit fraud or violate laws by purchasing the company.

Is the Company Complying With All Relevant Regulations and Laws?

This is not just a matter of legality. It’s also a matter of reputation. You don’t want to risk your reputation by being non-compliant.

Operational Questions

Operations questions focus on the day-to-day running of your business.

How Does the Company Generate Its Income?

This helps you understand its business model and how it makes money. A business that generates income through various channels is more likely to be stable and resilient than one that relies on one or two sources of revenue.

What Are the Company’s Key Products or Services?

The company’s key products or services should be described in detail, along with relevant information about how it competes in the marketplace.

What Is the Company’s Organizational Structure and Team Culture?

You want to understand how things like management, communication, and workflow work at the company. It will also help you determine whether or not the company is ready to be part of your organization.

Strategic Questions

When buying a company, consider how this purchase will fit into your overall strategy.

What’s the Company’s Long-Term Vision?

This question can give you a sense of whether or not the company is on track to meet its goals and how committed it is to that vision.

Who Are the Company’s Primary Competitors, and What’s the Market Situation?

You should know who your competition is so you can understand how you fit into the marketplace and how you can differentiate yourself from others in your field.

Are There Expansion Opportunities Available?

The best way to answer this question is to look at the company’s growth rate. If it has been increasing steadily for the last 10 years, this is a good sign. If it has been declining recently, then there may be trouble ahead.

Final Thoughts

Due diligence plays a major role in illuminating any potential risks or rewards associated with a transaction. This ultimate list of due diligence questions should give you an excellent starting point for any M&A process.