Due diligence is the most critical phase of a company sale. We explain what buyers analyse, how long the process takes, and how to prepare to avoid surprises.
You have signed the letter of intent. The buyer has presented an indicative offer that seems reasonable. The price, structure, and general conditions are on the table. It appears that the transaction is progressing. And then comes due diligence.
For many business owners, due diligence is the most stressful phase of the entire sale process. It is the moment when external professionals — lawyers, accountants, tax specialists, labour consultants — descend on the company and scrutinise every aspect of the business. It is invasive, time-consuming, and, if you are not prepared, deeply unsettling.
Due diligence is the process by which the buyer (and their advisors) verify the information provided by the seller, identify risks, and assess the true condition of the business. It is the buyer’s opportunity to look behind the numbers and understand what they are actually acquiring.
In the Spanish middle market, a comprehensive due diligence typically covers six areas: financial, tax, legal, labour, commercial, and — increasingly — environmental and IT.
Contrary to what many sellers believe, the buyer is not looking for reasons to walk away. They are looking for clarity. They want to understand the quality and sustainability of earnings, the reliability of the financial projections, the existence of hidden liabilities, the strength of the management team, and the risks that could affect value.
Specifically, buyers focus on:
Quality of earnings. Is the reported EBITDA real and sustainable? Are there one-off items that inflate it? Are there recurring expenses that have been excluded?
Tax exposure. Are there unpaid taxes, pending inspections, or aggressive positions that could result in future assessments?
Legal contingencies. Is there pending litigation, regulatory non-compliance, or contractual disputes?
Employee issues. Are there labour disputes, significant severance obligations, or key-person dependencies?
Customer concentration. Does a small number of customers represent a disproportionate share of revenue?
In the Spanish middle market, due diligence typically takes 6-12 weeks. The actual duration depends on the complexity of the business, the quality of the data room, and the responsiveness of the seller’s team.
Organise the data room before the buyer asks. The single most effective thing a seller can do is prepare a comprehensive, well-organised data room before due diligence begins. Every document the buyer requests and receives promptly builds confidence. Every document that is missing or delayed creates anxiety.
Normalise the EBITDA proactively. Prepare a detailed reconciliation between reported and normalised EBITDA, explaining every adjustment. Buyers will do their own analysis, but starting from a transparent basis reduces friction.
Disclose known issues upfront. If there is a pending tax inspection, a labour dispute, or a regulatory issue, disclose it before the buyer discovers it. Surprises found during due diligence are far more damaging than issues disclosed proactively.
Appoint an internal coordinator. Designate one person to manage the information flow between the seller’s organisation and the buyer’s advisors. This person should have authority to access all departments and the bandwidth to respond promptly to requests.
Due diligence findings typically lead to one of three outcomes: confirmation of the agreed terms (if no significant issues are found), a price adjustment (if issues are identified that were not reflected in the original valuation), or renegotiation of specific terms (such as the scope of warranties or indemnification provisions).
In a well-prepared process, the most common outcome is confirmation with minor adjustments. In a poorly prepared one, significant renegotiation or even deal collapse is common.
Due diligence is not something that happens to you — it is something you prepare for. The business owners who navigate it successfully are those who treat it as an opportunity to demonstrate the quality of their business rather than as an ordeal to be endured. Preparation, transparency, and responsiveness are the three qualities that make the difference.
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
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