Academic due diligence has hundreds of items. Practical due diligence comes down to a handful of critical questions that determine whether a deal succeeds or fails. We share ours.
Due diligence is probably the most feared phase of any business sale process. After participating in more than 150 company valuations, I have learned that academic due diligence — those checklists with three hundred items — is necessary but insufficient. What truly determines whether a deal succeeds or fails comes down to a handful of critical questions.
Formal due diligence typically divides into four areas: financial (auditors reviewing statements, normalising EBITDA, verifying net debt), tax (reviewing returns, identifying contingencies), legal (reviewing contracts, litigation, intellectual property), and labour (workforce, collective agreements, contingencies).
These reports are valuable and necessary. But they do not tell the whole story.
Not all euros of turnover are equal. We examine the composition of revenues: How many clients? What concentration? (A single client above 20% of turnover is a risk.) What is client retention year over year? Is revenue growing from existing clients, new clients, or price increases?
This is probably the most critical question. How much of what works in this company depends on the founder’s presence, relationships, and energy? We evaluate this by looking at who signs major contracts, who makes pricing decisions, who resolves urgent problems, and whether the management team has genuine autonomy.
Financial statements do not measure team quality. But team quality determines future financial statements. We visit facilities, talk to employees, observe interactions, and pay attention to subtle signals — warehouse orderliness, office cleanliness, receptionist attitude, meeting punctuality. Everything communicates.
Perhaps the most revealing signal is the degree of consistency between what the entrepreneur said during negotiations and what we find during examination. Significant discrepancies — inflated revenues, hidden contingencies, minimised labour problems — break trust. And once trust is broken, the deal is very difficult to save.
Finally, we assess practical, credible improvement potential — not the theoretical kind (“if we sold in ten more countries…”) but levers we know how to activate: management control, commercial function professionalisation, operational process optimisation, complementary acquisitions, pricing improvement.
Be transparent. What you hide will be found, and the trust damage will exceed the finding itself. Prepare documentation well. A well-organised data room accelerates the process and projects professionalism. Anticipate problems. Every company has them; the buyer knows this. Do not take findings personally. Due diligence is a technical process, not a moral judgement. Keep the business running. A performance decline during the process is the worst possible signal.
Dirk Manuel Martens Jimenez Founder, Blue Mountain Capital
Founder of Blue Mountain
Over 15 years investing in Spanish companies with patient capital. Expert in business succession, corporate governance, and middle-market investment.
By Blue Mountain Capital
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
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