The target's earnings look attractive, but its strongest customer relationships may leave with three employees after closing. Your investigation must identify what the buyer is acquiring, what it owes, and what could disappear.
Buy-side due diligence is the buyer's investigation of a business it may acquire, called the target. You use it to test the acquisition rationale, discover risks, and recommend changes to price, contractual protections, or integration plans.
In buy-side due diligence, you coordinate a comprehensive, confidential investigation with financial, legal, operational, and personnel specialists as the buyer's banker. Management supplies information; specialists assess matters within their expertise; the buyer decides whether to proceed. You connect their findings so that a labor restriction reaches the team estimating consolidation savings.
Start by identifying decisions the investigation must support. Translate them into requests, assign owners, and track outstanding answers. Coordinating management presentations gives the buyer access to the target's leaders, who explain strategy, operations, forecasts, and assumptions. Circulate an agenda beforehand and request evidence afterward.
Common mistakes
- Treating 4.0 times reported leverage as the final answer in Example 1 misses $25 million of specified debt-like obligations.
- Counting $5 million of proposed savings in Example 2 ignores timing, retention compensation, and implementation costs.
- Treating disclosure as permission for a new executive personal loan misses Section 402's prohibition.
Bottom line
- Buy-side diligence connects confidential evidence to acquisition price, protections, and integration decisions.
- Management presentations, data-room access, site visits, and outside sources serve different investigative purposes.
- Debt-like adjustments and available cash determine adjusted net debt without double counting.
- Workforce obligations, retention needs, and implementation timing affect achievable savings.
Exam shortcut
Identify the decision first: acquisition economics, a reporting obligation, or registration-statement liability. That choice tells you which standard to apply. For leverage, mark each obligation “already included” or “additional” before calculating. Subtract only cash the question makes available. For consolidation savings, draw two columns: recurring annual benefit and first-year cash effect. Put delays and one-time costs in the second column.
The full lesson (about 3,743 words, 25 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- A12
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