Complete due diligence guide for company buyers: the six critical dimensions (financial, tax, legal, employment, commercial, and operational), the most common findings in the Spanish middle market, and how to protect yourself against contingencies.
Due diligence is the investigation and verification process carried out by the buyer before formalising a company acquisition. Without exaggeration, it is the most important phase of the purchase process — the one that saves the most money when done well, or costs the most when done poorly.
This guide covers the six dimensions of due diligence from the buyer’s perspective, based on Blue Mountain Capital’s experience in over one hundred and fifty company evaluations in the Spanish middle market.
Due diligence serves three fundamental functions for the buyer:
Verifying information. The seller presents their company in the best possible light. Due diligence verifies whether reality matches the presentation. Financial statements, contracts, the tax and employment situation — everything must be independently verified.
Identifying risks. Every company has contingencies: tax, employment, legal, commercial, operational. Due diligence identifies these contingencies, quantifies them, and allows the buyer to decide whether to accept the risk, mitigate it through the contract, or walk away.
Calibrating the price. Due diligence findings adjust the valuation. An EBITDA inflated by non-recurring items, an undisclosed tax contingency, or excessive client concentration reduce the company’s value and must be reflected in the price.
This is the backbone of the process. Its objective is to verify the quality and sustainability of the company’s financial results.
What is analysed:
Common findings in the Spanish middle market:
Tax contingencies are one of the most frequent — and potentially most costly — findings in Spanish middle-market acquisitions.
What is analysed:
Common findings:
The legal review covers corporate structure, contracts, litigation, and regulatory compliance.
What is analysed:
Common findings:
The employment component is especially relevant in Spain given the complexity of its labour regulations and worker protections.
What is analysed:
Common findings:
Frequently underestimated, commercial due diligence is, in our experience, one of those that adds the most value for the buyer.
What is analysed:
Why it matters: Financial due diligence tells you how the company has performed. Commercial due diligence tells you how it will perform. If the market is in decline, key clients are dissatisfied, or competition is eroding margins, the good numbers of the past will not be repeated in the future.
This evaluates the company’s ability to continue operating and growing after the acquisition.
What is analysed:
| Phase | Duration | Activity |
|---|---|---|
| Week 1-2 | Planning | Define scope, select advisors, prepare information requests |
| Week 2-4 | Data room | Review documentation in the virtual data room |
| Week 3-6 | Analysis | Fieldwork: financial analysis, legal review, site visits |
| Week 5-8 | Findings | Preliminary reports, identification of critical findings |
| Week 7-10 | Clarification | Questions to the seller, clarification meetings |
| Week 8-12 | Final reports | Delivery of final reports, recommendations |
Not all findings carry the same weight. Classify them by impact:
Deal-breakers. Findings that make the deal unviable: fraud, massive undisclosed contingencies, existential risks to the business. They are infrequent but they exist.
Price adjustments. Findings that reduce the company’s value: inflated EBITDA, quantifiable contingencies, unforeseen investment needs. These are the most common.
Contractual protections. Findings that can be managed through clauses in the purchase agreement: specific seller warranties, additional escrow, indemnities.
Acceptable risks. Minor findings the buyer can accept without price adjustment or contractual protection.
Skimping on advisors. Due diligence is an investment, not an expense. An undetected finding can cost ten or a hundred times more than the cost of due diligence.
Focusing only on the numbers. Financial due diligence is necessary but insufficient. Commercial (how is the market?) and operational (can the company keep running?) due diligence are equally important.
Not visiting the premises. The data room does not replace a physical visit. The condition of facilities, team morale, and the working environment can only be perceived in person.
Time pressure. The seller and banks push to close quickly. Do not sacrifice due diligence depth for speed. If you need more time, ask for it.
Not speaking with clients. If the seller allows you to speak with key clients, do so. The client’s perspective is irreplaceable.
Due diligence is not a bureaucratic formality — it is the process that protects the buyer from buying problems disguised as opportunities. Every euro invested in due diligence is a euro well spent.
For a complete view of the acquisition process, see our guide to buying a company in Spain. If you need advice on an ongoing due diligence process, contact our team.
By Blue Mountain Capital
By Blue Mountain Capital
By Blue Mountain Capital
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