What Is Due Diligence? Process and Significance in a Company Sale

At the latest when a buyer shows serious interest, the term comes up: due diligence. It means the careful examination of the company by the interested buyer before they finally commit. For sellers it is one of the decisive phases — because here it is decided whether trust arises or doubt.

For owners running an actual process, our approach to selling your company sets out how the mandate works.

What does due diligence mean?

"Due diligence" means "requisite care": the buyer examines the company systematically to understand opportunities and risks, secure the purchase price and avoid later surprises. It usually takes place after the letter of intent (LOI), in a protected data room in which the seller provides the documents.

Which areas are examined?

The buyer examines the company along several fields — finance, law, tax and market form the core; depending on the industry, technical, personnel or IT reviews are added. The scope depends on size and complexity.

Review field	What is examined
Financial	annual accounts, planning, earnings and liquidity, quality of the figures
Legal	contracts, corporate structure, litigation, permits
Tax	tax situation and risks
Commercial	market, competition, customer and supplier dependencies
Further (by industry)	technology, personnel (HR), IT

Vendor due diligence — the review before the review

Some sellers have their company examined in advance themselves (vendor due diligence): this uncovers weaknesses early, so they can be fixed or explained before the buyer finds them. It is an effective means of protecting value and speeds up the later process.

How such an advance review works is deepened in „Vendor Due Diligence".

How are due diligence findings renegotiated?

Due diligence findings usually do not end a sale; they are renegotiated. The buyer assesses how material and how likely a risk is and proposes a response: a lower purchase price, a warranty or indemnity, an escrow retention or a different structure. The earlier an issue is on the table, the more objectively it can be negotiated.

Four responses are common:

• Purchase price adjustment: a quantifiable risk reduces the price or is reflected in the price formula. A separate article explains how deductions and price adjustments work.
• Warranty or indemnity: the seller gives an assurance on a specific matter or takes on a specific risk separately. Where this sits in the contract is covered by the warranty and indemnity provisions in the SPA. A policy of W&I insurance for unknown risks usually does not cover known findings.
• Escrow: part of the purchase price is held in an escrow account for an agreed period and released only if the risk does not materialise.
• Termination: if a finding calls the economic basis of the transaction into question, the process ends, usually before signing.

Which response fits depends on the nature and scope of the finding; the legal drafting is negotiated by the lawyers on both sides. The more weaknesses are known and explained before the sale process starts, the less room there is for renegotiation. Our seller-side support during due diligence starts exactly here.

How do you prepare as a seller?

The best due diligence is the one that brings no surprises: clean, comprehensible figures, an orderly data room, openness about known weaknesses and reduced dependencies on the owner and individual customers. Explaining weaknesses creates more trust than hiding them.

Those who prepare early move faster and more securely through the review — and avoid subsequent price discounts. Where due diligence sits in the overall process is shown in „The Process of a Company Sale".

A well-prepared due diligence protects your sale price. Have it accompanied independently and discreetly — IGCP Capital Partners. → igcp.at

Which additional questions arise in 2027, for example on e-invoicing and pay transparency, is described in the article new due diligence review items from 2027.

Frequently asked questions

What is a due diligence in simple terms?

The careful examination of the company by the buyer before the purchase — finance, law, tax, contracts and market. It is meant to uncover risks before the purchase agreement is signed, and it secures the purchase price.

How long does a due diligence take?

For smaller and medium-sized transactions usually a few weeks to a few months, depending on size, complexity and the completeness of the documents. Good preparation shortens it considerably.

Who carries out the due diligence?

The buyer, usually with auditors, lawyers and tax advisers. The seller provides the documents in a protected data room under confidentiality (NDA).

What happens if the due diligence finds problems?

Findings feed into the negotiation — they can affect price, warranties or structure, e.g. via an earn-out. Well-prepared sellers limit such effects.

How do I prepare as a seller?

With clean documents, an orderly data room and ideally an advance review of your own. Details in „Vendor Due Diligence". A ready-made Excel structure for the data room is the M&A Data Room Manager with data room index and Q&A tracker.