Rushed Due DiligenceThe impact of inadequate due diligence once the deal has completed, and how to decide on the level of scrutiny a transaction actually warrants.

We’ve advised on over 100 M&A deals and worked with over 1,000 business owners, across buy-side and sell-side due diligence, valuations, negotiation and partner disputes. In that time, we’ve seen the same pattern repeat: a buyer pays millions for a business, only to discover six months later that the numbers they based their valuation on didn’t stack up.

The discovery is more common than you think. It’s not hidden fraud, or a once-in-a-decade market event. It’s something that could have been found during due diligence, if the review had been deep enough.

This paper isn’t about what due diligence includes. It’s about what skipping the right level of it costs once the deal has already completed.

What Usually Goes Wrong?

Rushed due diligence isn’t usually the result of carelessness. It’s the result of time pressures.

Here’s what typically happens. The buyer and seller agree on the heads of terms. Everyone is excited. The lawyers start drafting. The lenders want comfort. And someone, usually the buyer’s solicitor, says “we need financial due diligence, and we need it done in four weeks because completion is booked for six”.

Four structural pressures follow.

The seller is in a hurry. They’ve mentally moved on. They want the deal done before the buyer changes their mind, before the market shifts, before something else complicates it. Every additional week of diligence feels like a week of delay, and raises uncertainty that the deal could fall apart.

The buyer is nervous about losing the opportunity. They’ve beaten off other bidders, or they’re worried another buyer will appear. Asking for more time feels like a way to lose the deal, especially if the seller has other options. Plus, it’s another cost, raising the overall spend on the deal even further.

The transaction timetable is already set. Completion dates become the focus, often before anyone has thought carefully about how much due diligence the deal actually needs. Once it’s in the diary, everything else has to bend around it.

Everyone assumes someone else is managing the risk. The buyer assumes the warranties will protect them. The lawyers assume the accountants will find anything material. The accountants assume the buyer understands what a compressed review can and can’t deliver. No one explicitly decides that a shallow review is acceptable. It just becomes the default.

Nothing stops a seller building their due diligence library before the process starts. Very few do. It gets left until the buyer’s request list arrives, and then assembled at speed, which is when things go wrong: documents that can’t be found, or the wrong version of a document entered into the data room. Every one of those creates a query, and every query costs time the timetable hasn’t allowed for.

So a compressed review is often not just the buyer’s problem. The information arrives late because it was never prepared, and the review gets squeezed at the end to protect a completion date that was set before anyone knew how ready the seller actually was.

The result is that due diligence becomes a box to tick rather than a decision that changes the deal terms.

What Does the Evidence Say?

The numbers aren’t encouraging.

Between 70% and 90% of acquisitions fail to create value for the buyer. That range comes from Harvard Business Review, reviewing decades of research.1 A more recent study of 40,000 transactions spanning 40 years puts it at 70% to 75%, so the picture hasn’t improved with time or better tooling.2

Due diligence sits upstream of most of the reasons deals fail. You can’t know whether a price is excessive without having properly examined what you’re buying, and you can’t examine it properly on a compressed timetable.

Grant Thornton’s 2023 M&A Dispute Survey looked at 3,668 completed deals and found that 36% of those with post-close working capital adjustments ended in dispute, alongside 26% of those with earn-out adjustments. Those were predominantly larger, US-based transactions, but the mechanism is the same at any deal size: the adjustments still moving after the price is agreed are the ones that get argued about.3

Our own work bears that out. In one financial due diligence engagement this year, we identified EBITDA adjustments with the potential to move the valuation by £1.5m. Whether or not a buyer chooses to renegotiate on findings like that is their decision. The point is that the exposure was identified before completion rather than discovered afterwards.

What Is Most Commonly Missed

When deals go wrong, the problems cluster in a small number of predictable areas. They’re not exotic. They’re not unknowable. They’re things that a deeper review would have found.

Is the Adjusted EBITDA Real?

The EBITDA a seller presents is almost always an adjusted figure. The adjustments are where the valuation argument lives.

Sellers add back one-off costs that they say won’t recur. They capitalise spending that arguably should have been expensed. They recognise revenue early. They normalise owner remuneration generously. Individually, each adjustment might be small and defensible. Collectively, they can move a multiple-based valuation by hundreds of thousands of pounds.

A compressed review samples the seller’s adjustment schedule and checks that the largest items have some support. A proper review rebuilds the schedule from scratch, tests every assumption, and works out what the earnings really are on a consistent basis. The difference between those two approaches is often the difference between paying the right price and paying too much.

Is the Working Capital Calculated Correctly?

Working capital is the one number that’s still moving after the price is agreed. It’s also disputed more often than any other post-close adjustment, because buyers and sellers can’t agree what a “normal” level looks like.

Establishing that normal level requires understanding seasonality, actual collection patterns, and whether the seller has managed receivables or payables in the run-up to completion to make the position look stronger than it really is. That work takes time. When it’s skipped, the buyer ends up funding a working capital shortfall they never priced into the deal.

Is there Customer and Revenue Concentration?

Concentration is only half of the question. The age and stickiness of the client base matters just as much. An ageing, gradually declining customer list and a young, unproven one carry very different risks, and neither shows up in a revenue figure.

The more important question is who actually holds the relationship. If it sits with the owner who is about to depart, rather than with the business, then customer retention after completion is not a projection; it’s a hope.

Are there Any Contractual and Off-Balance-Sheet Liabilities?

Change-of-control provisions. Supply agreements on unfavourable terms. Unrecorded commitments. Dilapidations on leased property. Employment obligations. Early-stage disputes that haven’t yet landed on the balance sheet.

None of these are difficult to find if you’re looking through the contracts and the correspondence. All of them are easy to miss if the review is scoped to the financial statements and nothing else.

There’s a related trap here. When due diligence is compressed, buyers often rely on warranties to cover areas they haven’t examined. That converts a question you could have answered into a claim you have to win, against a seller who may no longer have the money to pay it.

What is the Tax Exposure?

Historic treatment of employment status. VAT positions. R&D claims. Group structures. Each of these can carry an exposure that survives completion and transfers to the buyer.

Tax review is often the first thing to be trimmed when the scope is under pressure, on the assumption that the warranties will cover it. But tax exposures can be large, and they can take years to surface. By the time HMRC raises an enquiry, the seller may be long gone and the warranty may be time-barred.

The True Impact of Getting It Wrong?

The amount overpaid is only the first line of the bill.

The Price Paid

Multiple-based pricing amplifies every unchallenged adjustment. If a seller has added back £100,000 of costs that actually do recur, and the deal is priced at 5x EBITDA, the buyer has overpaid by £500,000. That money is gone the moment the deal completes.

Funding Terms

Lenders price the risk they can see. A thin due diligence report weakens the buyer’s negotiating position on covenants and margin. The lender either charges more or lends less. That cost doesn’t land once. It recurs over the life of the facility, often three to five years.

Disputes and Warranty Claims

Post-completion disputes are expensive even when you win. Earn-out disagreements and warranty claims require legal advice, expert reports, and management time. All of that is cost and distraction that could have been avoided by stress-testing the figures before completion.

And disputes are only worth pursuing if the seller is good for the money. If they’ve spent the proceeds, the claim is worthless.

Integration Drag

Problems discovered after completion consume the management capacity that was supposed to deliver the acquisition’s benefits. Instead of integrating systems and realising synergies, the buyer is firefighting issues that should have been found and addressed before the deal closed. The whole investment case gets delayed.

Reputational Cost to the Adviser

This cost doesn’t fall on the buyer. It falls on the person who recommended the provider and agreed the scope.

If you’re a referring solicitor or a PE partner, and you recommend a due diligence provider who runs a shallow review to hit a deadline, the material issue that surfaces six months later doesn’t just attach to the deal. It attaches to your recommendation.

That’s the cost that makes this decision yours, not just your client’s.

How Much Due Diligence Does Your Deal Need?

The honest answer is: it depends on what you’re buying and what could go wrong.

We’ve structured our financial due diligence offer into three levels, each designed for a different risk profile and size of company being acquired. They’re a way of deciding, on the record, how much scrutiny a given deal warrants.

Each level includes everything in the level below it, so you can start light and go deeper as a deal firms up rather than committing to a full review before you know whether you want the business.

Option A: Express

This is for early-stage buyers. You’re interested, but you haven’t committed, and you don’t yet want to spend heavily on a business you might walk away from.

It covers a high-level financial review, a look over the management pack, a commercial assessment, and direct access to us by call and email. The output is a concise email summary rather than a formal report.

It’s designed to tell you quickly whether this deal is worth pursuing, and to flag anything that should change your view before you spend more.

When it fits: “We like the look of this business and we’ve had initial conversations, but we’re not ready to commit real money to diligence yet. We need someone to look over the numbers and tell us whether there’s anything here that should stop us going further.”
Option B: Assurance

This is for buyers progressing toward completion. The decision to proceed has effectively been made, and now the price and the terms need to stand up.

It adds revenue and customer analysis, a staff and salary review, detailed analytics and tax review to everything covered at Express level. The output is a full written report, which is what a lender or an investment committee will expect to see.

This is the level at which the earnings quality, working capital and customer concentration questions get properly tested rather than sampled.

When it fits: “We’re going ahead with this one. We need the numbers stress-tested properly, and we need a report our lender will accept.”
Option C: Risk Plus

This is for larger or higher-risk transactions, where the exposure justifies going beyond desk-based analysis.

It adds inventory audits, management interviews and bespoke risk procedures to everything in the Assurance level. The output is a full written report.

This is the level for deals where something specific worries you and you need it investigated rather than reviewed. Customer concentration you want tested with the customers themselves. Stock you want counted. A management team you want to interview.

When it fits: “This is a group structure with intercompany positions, historic R&D claims and significant stock. The exposure is too large to rely on a desk review, and we need procedures built around the specific things that could go wrong here.”

How to Have the Conversation

The key is to make the choice explicit before the timetable hardens, and to revisit it as the deal firms up.

Imagine a referring solicitor reasoning openly with their client: “You’re early on this one, so let’s start with an Express review. It’s proportionate to where you are, and it’ll tell us quickly whether there’s anything that should stop you. If you decide to proceed, we step up to Assurance and get the earnings and working capital properly tested before you fix a price. And if the stock position or the customer concentration turns out to be as significant as it looks, we go to Risk Plus and actually verify it rather than take it on trust.”

That conversation, captured in an email, on the file, before anyone commits to a completion date, is what good advice looks like. It also means the scope decision is a series of deliberate steps rather than one guess made at the start.

Four Questions Worth Asking Before You Agree the Timetable

The right time to have this conversation is before the deal timetable is set, not after it’s fixed. Completion dates can move, and are often optimistic when you take into account not just the speed of information release, but also the time taken to review the documentation.

  1. Is this a first acquisition, or has the buyer done this before? First-time buyers don’t yet know what they don’t know. They need more scrutiny, not less, because they haven’t learned the discipline that serial acquirers develop over repeated transactions.
  2. Where is the risk concentrated? If it’s customer concentration, earnings quality, or working capital, those are exactly the areas a compressed review will under-examine. Knowing where the risk sits tells you how much scrutiny that deal actually needs.
  3. What does the lender need to see? If the buyer is borrowing to fund the deal, the lender will want a credible due diligence report. A thin review weakens the buyer’s negotiating position and costs them on margin and covenants. That’s a real cost, and it recurs.
  4. Can we defend this scope decision in twelve months if something material surfaces? This is the question that clarifies everything. If a post-completion problem lands on your desk, and someone asks why a deeper review wasn’t commissioned, what would you say? “We ran out of time” is a weak defence. “We made a deliberate decision based on the risk in the deal, and we documented it” is a strong one.
Ultimately, a smooth and relatively swift completion is an outcome of a good process, not the main goal.

What About Choosing a Provider?

Referrers evaluating any FDD provider, not just Goringe, should be asking three things.

  • Does the provider offer tiered plans: light-touch assurance through to full forensic review, or is it one package regardless of deal size and risk?
  • Will they tell you upfront what the full range of scope looks like and what your deal needs right now, rather than quoting low and expanding the bill once you’re committed?
  • Can they turn findings around inside your actual transaction timeline, or will their standard process force a choice between rushing the deal and missing the window?

The Good News

The good news is that almost everything that goes wrong in M&A is discoverable before completion, if you look properly and allow enough time.

The other good news is that this is a learnable discipline. Buyers who acquire repeatedly get better at it, and not through luck. They learn what to look for and how much scrutiny a given deal warrants.

The cost of getting due diligence wrong compounds after completion and outlasts the deal itself. The cost of getting it right is a known, proportionate fee agreed upfront, and a clear-eyed view of what you’re buying.

The difficult bit is having the conversation early enough, before the timetable is fixed and the pressure to rush takes over. That conversation is easier if you’ve got a clear framework for deciding how much scrutiny the deal actually needs, and if you’ve made that decision deliberately, on the record.

If you’d like to discuss how much due diligence a specific deal warrants, we’re always happy to talk it through before you commit to a timetable.

Simply call the Goringe team on 0118 914 4500 or book an appointment through our website.

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Sources

  1. Christensen, C., Alton, R., Rising, C. and Waldeck, A., “The Big Idea: The New M&A Playbook”, Harvard Business Review, vol. 89 no. 3, March 2011. https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook
  2. Lev, B. and Gu, F., The M&A Failure Trap, Wiley, 2024. Study of 40,000 transactions over 40 years. Summarised by the authors in Fortune, 13 November 2024. https://www.fortune.com/2024/11/13/we-analyzed-40000-mergers-acquisitions-ma-deals-over-40-years-why-70-75-percent-fail-leadership-finance
  3. Grant Thornton, “With rising deal volumes, expect an increase in M&A disputes”, 2023 M&A Dispute Survey, published 2024. Based on 150 active buy-side and sell-side deal participants across 3,668 deals completed in calendar year 2022. https://www.grantthornton.com/content/dam/grantthornton/website/assets/content-page-files/advisory/pdfs/2024/ma-dispute-survey-2023-report.pdf