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January 17, 2021 4 minute read

Preliminary Due Diligence

Preliminary or “Desktop Due Diligence” is the initial review of a company through evaluation of data and documents to determine whether or not a company is a good match financially, culturally and strategically, before committing to a costly full due diligence effort.


  1. Determine how serious the seller is in selling the business and why they are selling.
  2. Start developing a relationship with leaders of the company.
  3. Minimally visit the company’s headquarters and observe operations. Visiting additional sites can be important, depending on the type of business.  This is the opportunity to get detailed product demonstrations, as well.
  4. Perform high-level investigation and analysis of business to determine whether it is a good fit for an acquisition (see II below).
  5. Determine what price you will offer in your Letter of Intent, if you move forward.
  6. Identify any risks or any show-stoppers in buying the business.

Investigation and Analysis

Since at this stage, there may be other prospective buyers, you will not be allowed to contact customers, suppliers or partners.  You will also only be able to speak with very few leaders of the company and no other employees, since it will still be in confidential status. So, most of your information will come from the site visit(s), interviews with the appointed leaders and your own research of the industry and company.

Keep in mind that the point of Desktop Diligence is to get crucial information to decide as to whether or not to move forward with the Letter of Intent (LOI), committing to full Due Diligence, which is costly.  Desktop Diligence should be the right balance of gathering enough information, but not going deeper than needed at this stage, and therefore costing the company more than necessary.

While this list is by no means comprehensive, some of the documents that you will most likely want to request are below.  The seller may not be willing to share all that you request, but you should develop your list based on what you absolutely need to know in order to make a go / no-go decision for a LOI.

  1. Financial statements for the last 3 – 5 years
  2. Financial projections
  3. Employee benefits package information
  4. Redacted customer list for top 20% of revenue
  5. Employee salary information
  6. Real estate information (owned properties, leased properties, etc.)
  7. IRS records
  8. Union contracts, if applicable
  9. Information on any law suits or pending litigation
  10. Information on any environmental studies

You will probably want to submit a list of questions to the seller, as well.  Some examples are below, but the questions need to be tailored, depending on the type of business, acquisition strategy, etc.

  1. Describe the nature of any central shared service support that is provided on behalf of the various operating locations.
  2. Please describe the company’s customer ordering platform. Is it automated or manual? Is it centralized or decentralized? What is the nature of the platform(s) used for order distribution, production planning and accounting?
  3. Does the company negotiate supplier pricing and contracts materials and transportation (UPS, FedEx, etc.) at the facility or corporate level?
  4. To what extent would the corporate executives consider being retained in a change of ownership and under a potential earn out structure?

Learn more on how to run a successful M&A on our M&A Management Playbook and Toolkit page.

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