I've been through due diligence more times than I care to count. On the buy side, the sell side, and occasionally as the board member watching the process unfold. The consistent lesson is this: most deals that should close don't, and the reason is almost never the one people expect.
What You Need to Know
- Due diligence kills more good deals than bad ones. The process is designed to find problems, and it will always find them. The question is whether the findings are material or just noise
- Sell-side unpreparedness is the single biggest deal killer. Companies that haven't organised their own house before entering a process waste months and erode buyer confidence
- The emotional dynamics of due diligence are underestimated. Founders experience it as an invasive audit of their life's work. Buyers experience it as risk discovery. Neither perspective is wrong, and the tension between them breaks deals
- Speed matters. The longer due diligence takes, the more likely external conditions will change and kill the deal
40-50%
of M&A transactions that reach the due diligence stage ultimately fail to close, with process breakdown cited more often than material findings
Source: Bain & Company, Global M&A Report, 2023
The Sell-Side Problem
The most common due diligence failure I see is on the sell side. A company decides to explore a sale, gets excited about valuation discussions, and then enters due diligence completely unprepared.
Customer contracts are scattered across email inboxes and filing cabinets. Employment agreements have inconsistencies. IP ownership has ambiguities that were never cleaned up. Financial reporting doesn't reconcile cleanly across periods. The data room takes six weeks to populate instead of six days.
Each of these issues is individually solvable. Collectively, they signal to the buyer that the company lacks operational discipline. And that's a much harder problem to look past than any individual finding.
At Sealcorp, when we were preparing for a transaction, we spent four months getting the house in order before we spoke to a single potential buyer. Every contract was reviewed. Every financial statement was audited. Every IP assignment was confirmed. When due diligence started, the data room was complete on day one.
That preparation didn't just accelerate the process. It changed the power dynamic. When buyers saw a clean, well-organised data room, they approached the process with confidence rather than suspicion.
What "Deal-Ready" Actually Means
If you're a CEO or founder thinking about a transaction in the next two to three years, start preparing now. The specifics:
Financial statements audited for the last three years, with consistent accounting treatment and clear notes on any adjustments or one-offs.
Customer contracts organised, current, and with clear renewal terms. Any contracts with unusual termination provisions flagged and explained.
Employment agreements standardised, with IP assignment clauses, non-compete provisions, and termination terms clearly documented.
IP ownership unambiguous. If your company has developed technology, the chain of ownership from employee or contractor to company should be watertight.
The Buy-Side Problem
Buyers create their own due diligence failures, typically through a combination of scope creep and process rigidity.
I've watched acquiring companies deploy due diligence teams of twenty people across legal, financial, commercial, and technical workstreams. Each workstream generates a list of findings. Each finding gets categorised as a risk. The aggregate risk profile grows until the deal team loses sight of the strategic rationale that justified the acquisition in the first place.
Due diligence should answer one question: does this investment thesis hold up under scrutiny? Instead, most processes answer a different question: how many problems can we find? The difference in framing changes everything.
Mike Ridgway
Technology Growth Advisory
The best acquirers I've worked with start due diligence with a clear list of three to five things that must be true for the deal to proceed. They focus their investigation on validating or invalidating those critical assumptions. Everything else is noted but not treated as a deal issue.
The worst acquirers treat due diligence as a comprehensive audit with no prioritisation. Every finding carries equal weight. The IP assignment gap from a contractor who left five years ago receives the same attention as a material customer concentration risk. The process expands until the timeline and the deal team's patience are both exhausted.
The Emotional Dimension
Due diligence is an inherently adversarial process, regardless of how collegially it's conducted. The buyer is looking for reasons to reduce the price or walk away. The seller is trying to present the business in the best possible light while maintaining credibility.
For founders, this is deeply personal. Someone is forensically examining the business they built. Every shortcut they took, every process they didn't formalise, every decision they made under pressure is now being scrutinised by people who weren't there.
I've seen founders become defensive, combative, or withdrawn during due diligence. Each of these reactions makes the process harder and increases the risk of failure. The founders who navigate it best are the ones who can separate their personal identity from the business being examined, and who view due diligence as a collaborative validation rather than an adversarial investigation.
67 days
average time from due diligence start to deal close for successful mid-market technology acquisitions, vs. 120+ days for deals that eventually collapse
Source: PitchBook, M&A Process Benchmarks, 2023
What Saves Deals
A dedicated deal team. On both sides, the people managing the due diligence process should not be the same people running the business. Due diligence is all-consuming. If the CEO is simultaneously managing the process and running operations, both suffer.
Clear escalation protocols. Not every finding needs to go to the principals. Most can be resolved at the working team level. Define upfront what constitutes a material finding that requires principal-level discussion and what can be resolved by the deal teams.
Momentum management. The biggest enemy of a deal is time. Every week that passes increases the probability that something external - market conditions, competitive dynamics, internal politics - will kill the transaction. The best deal teams maintain relentless forward momentum, resolving issues in real time rather than accumulating them for a final negotiation.
Honest communication. The sell-side team that proactively discloses issues and explains context builds trust. The one that buries problems and hopes they won't be found destroys it. Buyers expect to find issues. They don't expect to be misled about them.
The deals that close are not the ones with the fewest findings. They're the ones where both sides maintain trust, momentum, and perspective throughout a process designed to strain all three.