The Art of M&A: A Buyer’s Guide to Due Diligence and Negotiation

May 2023

The Art of M&A: A Buyer’s Guide to Due Diligence and Negotiation

The acquisition process can be challenging for even the most seasoned buyers. 

Due diligence and negotiation are two of the most critical (and complex) steps when it comes to mergers and acquisition (M&A) deals. Failing to manage them correctly can have dire consequences and may destroy a deal altogether — so it pays to know what you’re doing. 

We’ve put this guide together to tell you everything you need to know about M&A due diligence and negotiation, with expert tips to help you achieve the best outcome. Let’s start by looking at the acquisition negotiation process…

How to negotiate an acquisition 

So you’ve found a company you want to acquire? Great! The first step is to make it clear that you want to acquire the business — this is typically done through a letter of intent (LOI). 

What is an LOI? 

The LOI is one of the first documents negotiated in an M&A deal. It’s a written document that outlines important terms such as:

  • The parties involved in the transaction (both buyer and seller)
  • Basic terms of the deal (proposed offer price, timeline and structure)
  • Due diligence process (data which the seller must provide the buyer with so they can analyse the business) 
  • Binding agreements (whether the transaction is on a cash-free/debt-free basis, which most are, and other agreements between the parties). 

In most cases, you (the buyer) will send an LOI to the seller to show your interest in acquiring the company. If the seller accepts the LOI, you will both sign the document and get started on the due diligence stage of the transaction — more on this below.

Why is an LOI important? 

An LOI lays out the basic terms of the final deal and becomes a roadmap for the acquisition process. Take a look at these five benefits of writing a strong LOI:

  1. Saves time: An LOI sets clear timelines and allows both parties to negotiate and agree on basic terms early on. This reduces the likelihood of delays and other issues. 
  2. Boosts success rate: Research shows that negotiating an LOI at the outset of an M&A deal significantly increases the chances of a successfully completed transaction.
  3. Improves transparency: LOIs improve clarity and transparency during M&A deals and minimise misunderstandings. 
  4. Builds trust: Writing an LOI shows the seller that you are acting in good faith and are serious about the deal. 

Looking for guidance on how to write an LOI? Check out Foundy's Doc Templates.

Suggested reading: What is a Letter of Intent in M&A Deals?

How do I prepare for negotiations? 

You will then launch into the acquisition negotiation process to check that the arrangement will work for both parties and if so, how.  

“By failing to prepare, you are preparing to fail.” This is no exception when you acquire a business  — the outcome depends on how well you prepare to negotiate with the other party.

So how do you prepare for the negotiation process? First and foremost, make sure that you research the company you’re interested in and have a clear understanding of what you hope to achieve from the deal. 

5 tips for successful acquisition negotiation

  1. Check that the business aligns with your vision, values, and goals: Ask yourself questions such as: What goal will the acquisition help you achieve? What value will the transaction bring to your company? Can you bring more value to the business than the purchase price being paid? Will the acquisition help you tap into new markets/revenue streams? 
  2. Collect information about the company you are acquiring: This might seem obvious, but make sure you ask the seller for information about the company before you enter negotiations. This should include financial records, customer lists, due diligence documents, among many other documents. It might take a while to get this info so ask for it early on.
  3. Don’t shy away from making the first offer: Worried about making the first offer? That’s normal, but research shows that the person who makes the first offer in a negotiation can gain a powerful advantage. Check out this study by Harvard Law School to find out more about why it could be wise to make the first offer in an M&A deal. Where multiple buyers are interested in a business, the seller will invite initial bids, which will be used to filter out potential buyers seen as undervaluing the business, or being a poor cultural fit for the business. Acquirers whose initial bids are deemed acceptable will be invited to a second round of negotiations. 
  4. Make a fair offer: Want to put forward an aggressive first offer? There’s nothing wrong with that and it might actually steer the negotiations in your favour. But at the same time, you need to make sure that your offer is reasonable or the seller might not take you seriously, and your bid might be rejected at the first stage.  
  5. Start preparing early on: As mentioned, early preparation is the key to successful negotiations! Start planning your negotiation strategy from day one and never leave your research to the last minute. 

TIP: An M&A advisor can offer valuable advice and help you prepare for the acquisition negotiation process.

How to conduct successful M&A due diligence

Due diligence is the final (and often the most dreaded) stage of the negotiation process. It’s true that due diligence can be a complex process and issues commonly arise, but performing detailed due diligence is a must before you put in an offer.

The good news is that there are plenty of things you can do to survive M&A due diligence and ensure that the process runs smoothly. 

What is M&A due diligence? 

Due diligence is all about verifying the financial and other information that the seller has provided and confirming the risks (and the amount of risk) for an acquiring company, as well as how you intend to mitigate these risks.

What types of M&A due diligence are there? 

M&A deals tend to focus on five main types of due diligence: 

  • Financial due diligence: This focuses on the financial health of a business. You will do a detailed assessment of the company’s historical and current financial performance to identify potential risks and create accurate financial forecasts. 
  • Legal due diligence: This focuses on all legal aspects of the business. You will collect and assess legal documents such as commercial contracts, regulatory compliance, employment, intellectual property, and legal liabilities. 
  • Tax due diligence: This focuses on historical compliance and checks that the company is up to date with payments across all areas of tax.
  • Operational due diligence: This focuses on the company’s operations. You will assess the business model and operations of the company to ensure it's a good fit for your requirements. 
  • Commercial due diligence: This focuses on assessing the marketplace which the business operates in, in terms of competitors, market share, market growth projections as well as industry-specific risks and threats. 

Why is due diligence important? 

A business acquisition is likely to be the biggest corporate transaction you will make, so you need to make sure it’s a good investment. 

Due diligence will help you understand the risks involved and feel confident that you’re making the right choice. It can be the difference between a successful acquisition and a bad one. 

Let’s look at some of the reasons why M&A due diligence is so important… 

Higher success rate 

Performing due diligence improves transparency and helps build trust between buyers and sellers. This is one of the main reasons why M&A deals that undergo detailed due diligence have a higher chance of success.


We all know that having a deal fall through is a nightmare for all parties involved. While there’s always some risk involved, performing due diligence will minimise it and boost your chances of having a successful acquisition. 

Make an informed decision

When you acquire a business, you will be provided with lots of information about various areas of the company such as finances, sales, employees, competitors, and so on.

Due diligence will verify this information and give you peace of mind that you’ll get what you expect from the transaction. This will help you assess the value of the company and feel more confident in your decision to acquire it. 

Identify risks 

The due diligence process will help you identify and manage risks before you acquire a business. This will save time and help you avoid issues later in the acquisition process. 

Another benefit of identifying issues early on? It can give you leverage in negotiations and help you reduce the offer price. 

Suggested reading: How Customer Due Diligence Led to a 30% Reduction in Offer Price

How do I perform due diligence on a company? 

Performing due diligence on a company is a crucial, yet tedious process. Here are four tips to do due diligence the right way…

  1. Start early: The due diligence process is time-consuming. Starting it early will give you more time to identify and resolve issues before the sale is completed. 
  2. Address potential issues: Make sure you address potential issues and risks as soon as they arise in the due diligence process. You shouldn’t turn a blind eye to anything!
  3. Work with experts: Working with M&A experts can make the due diligence process much more efficient — and less stressful.
  4. Use checklists: A checklist will help you organise the due diligence process and make sure that no stone is left unturned. 

What is a due diligence checklist? 

A due diligence checklist is basically a list of all the factors that you want to consider when carrying out due diligence. It will help you identify companies with the highest chances of success and ensure that the due diligence process runs smoothly. 

So what should I include in a due diligence checklist? 

  • Business model
  • Products and services
  • Competitor analysis
  • Existing operations
  • Financial reports
  • Shareholder research
  • Marketing strategy
  • Company trademarks and other IP

Don’t forget that you’ll need to adapt your due diligence checklist to reflect the type of business you want to acquire. For instance, operations and inventory management will be key components of due diligence when purchasing an eCommerce business but not so relevant for a SaaS business. 

How long does M&A due diligence take? 

Unfortunately, there’s no exact answer to this as the length of due diligence can vary depending on the size and complexity of the company you want to acquire. 

Generally speaking, the process can take anywhere between a few days for a smaller business to several months for a larger business. 

Working with a digital-first M&A partner like Foundy will streamline the due diligence process, saving you months of time.

Looking for a high-potential business to acquire? 

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