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Due diligence is the pre-closing investigation conducted by a buyer into a company to be acquired: financial, legal, tax, commercial, and operational. Goal: to identify risks, substantiate the purchase price, and formulate guarantees and indemnities for the SPA. For SME deals, this typically takes 4–8 weeks. Costs: €2,000 – €20,000 for external guidance, depending on the depth of the investigation. In addition to the buyer, a seller can also have a “vendor due diligence” performed to sell faster and more transparently.
The short answer
- What: Systematic investigation by the buyer into the BV to be acquired.
- When: between the term sheet and the signing of the SPA.
- Duration: 4–8 weeks for SMEs, longer for complex deals.
- Output: report with risks, price adjustments, guarantees, and indemnities for the SPA.
The four main areas
1. Financial
- Annual accounts for the last 3 years.
- Monthly figures last 12–24 months.
- Budget and forecast.
- Working capital position.
- Debts and financing agreements.
- EBITDA normalization and quality of earnings.
2. Legal
- Articles of Association and Shareholders' Agreement.
- Register of Shareholders.
- Material contracts (customers, suppliers, IT, IP rights).
- Permits.
- Pending lawsuits and claims.
- Employment contracts and application of the Collective Labour Agreement.
- Ownership of properties and lease agreements.
3. Tax
- Corporate income tax, VAT, and payroll tax returns for the last 5 years.
- Book audits by the Tax and Customs Administration (ongoing or recent).
- Set-off losses.
- Latent tax claims.
- Compliance with international treaties (for international activity).
4. Commercial and operational
- Client portfolio and concentration risk.
- Market position and competition.
- Operational systems and IT infrastructure.
- Staff turnover and key personnel.
- Production and delivery processes.
The data room
Salespeople put together a data room — formerly a physical room with documents, now almost always digital via specialized tools (Dreams, Intralinks, or a secure Google Drive/Dropbox). A good data room:
- Structured by category (financial, legal, tax, etc.).
- Index with table of contents.
- Logging of who viewed what.
- Questions and answers module.
A tidy data room speeds up the process and increases buyer confidence — often good for the purchase price.
The due diligence report
External consultants produce reports with:
- Findings by area: what has been checked, what has been found.
- Risk assessment: the impact and probability for each risk.
- Recommendations: for SPA guarantees, indemnities, price adjustments, or even deal-breakers.
- Quality of earnings: whether the reported profit is genuine.
The report serves as input for the SPA negotiations.
How much does due diligence cost?
- Financial Due Diligence (accountant): €5,000 – €25,000 for SMEs.
- Legal DD (legal expert or lawyer): €3,000 – €20,000.
- Tax Due Diligence (tax specialist): €2,000 – €10,000.
- Commercial/Market DD (external consultant): €5,000 – €20,000.
Total for an SME deal: €10,000 – €50,000 for the buyer. Vendor due diligence (seller) can be a comparable investment, recouped through a faster sale and a higher price.
Light DD versus full DD
Not every deal requires full due diligence:
- Light DD: for smaller deals (< € 500,000) — focus on the greatest risks, indicative report, costs € 2,000 – € 8,000.
- Full Due Diligence: for larger or strategic deals — all areas thoroughly, costs €25,000 – €100,000+.
- Vendor DD: The seller has a due diligence performed in advance to offer the buyer a clean file.
Honest recommendation
Due diligence is not a formality but the foundation upon which the purchase price and warranties are built. For the buyer: invest in thorough due diligence; it can save tens of thousands to hundreds of thousands of euros in risk. For the seller: prepare your BV with proper records and, optionally, vendor due diligence — this accelerates the process and often increases the price.
For the broader sale: how do I sell my BV and share purchase agreement.
Frequently Asked Questions
The pre-closing due diligence of a buyer regarding a company to be acquired: financial, legal, tax, commercial, and operational. Objective: to identify risks, substantiate the purchase price, and provide input for warranties and indemnities in the SPA.
For SME deals, typically 4–8 weeks. Light DD for smaller deals 2–4 weeks. Full DD for large or strategic deals 8–12 weeks. Depends on complexity, data room organization, and the number of advisors involved.
For SME deals, €10,000 – €50,000 total for financial, legal, tax, and commercial research. Light DD from €2,000 – €8,000. For large or international deals, rising to several hundred thousand euros.
The digital (formerly physical) space where the seller makes all relevant documents available for due diligence — financial, legal, tax, contracts, etc. Nowadays, almost always via specialized tools such as Drooms or Intralinks.
A due diligence performed by the seller themselves before bringing the BV to the market. Goal: to present a clean file, a faster sales process, and a higher purchase price. Often a good investment for sellers with multiple interested buyers.
Findings by area, risk assessment (impact and probability), recommendations for SPA guarantees and indemnities, quality of earnings analysis, and potential red flags that could be deal-breakers.
Typically, each party has its own costs: the buyer's due diligence costs, and the seller's (vendor) due diligence costs. In some deals, it is agreed that the seller reimburses a portion of the buyer's due diligence costs, particularly in the event of exclusivity and a successful closing.
