Acquisition Due Diligence: The Buyer's Checklist

Buying an SME without a structured acquisition audit is like buying a sealed box. The buyer agrees a price based on a flattering information memorandum, then discovers after closing the social liabilities, the cancellable client contracts and a cash position that was not what was claimed. Acquisition due diligence is your safety net: it tests the seller's narrative against the actual records, domain by domain.

Quick answer. Acquisition due diligence is a methodical review of the target before purchase, organised across five domains: financial, tax, employment, legal and commercial. The buyer checks the accounts, hidden debts and commitments, then secures the price with a representations and warranties agreement. In practice, allow three to eight weeks depending on size.

This article takes the buyer's perspective, complementing our acquisition audit and our complete due diligence guide. It gives you the checklist of documents to request and the checks to run so you never sign blind.

Due diligence is not about rebuilding the seller's accounts. It answers three decision questions: is the price justified, which risks am I buying alongside the company, and how do I neutralise them contractually.

In practice, an acquisition audit produces three useful outputs. First, a list of hard points that may justify a price reduction or an adjustment. Second, a map of the risks to be covered by the representations and warranties agreement. Third, a list of conditions precedent to insert in the deal, without which you do not sign the closing.

Our take. In acquisition files, the most frequent sticking point is not a spectacular liability but the gap between the cash presented and the real available cash once working capital is restated. A buyer who fails to isolate normative working capital almost always overpays.

Serious due diligence covers five domains. None stands alone: clean accounts can hide an employment dispute, and a healthy ledger can rest on a single client representing 60% of revenue.

1. Financial due diligence#

This is the heart of the audit. You check that restated profit, EBITDA and cash match the records, not the sales pitch.

• Reconcile the last three years of tax returns with the trial balances and the FEC.
• Restate profit for non-recurring items (atypical director pay, intragroup rent, exceptional income) to obtain a normative EBITDA.
• Calculate normative working capital and its evolution, the leading source of post-acquisition cash surprises.
• Analyse real net debt, including shareholder current accounts, leasing and off-balance-sheet commitments.
• Check the ageing of trade receivables and the existence of provisions for doubtful debts.

2. Tax due diligence#

A share buyer acquires the company with its tax history. In a purchase of shares, a reassessment notified after closing covers years you did not manage.

• Verify that all filings (VAT, corporate income tax, CVAE where applicable, CFE) have been submitted and paid.
• Check there is no ongoing procedure and that the elected tax options are consistent.
• Identify tax benefits that could be challenged on a change of control.

The general tax reassessment period available to the authorities is three years (article L169 of the French Book of Tax Procedures), which serves as the usual anchor for calibrating the length of warranties.

What the authorities look at. In a post-acquisition audit, the consistency between collected VAT and declared revenue, unsupported deducted expenses and the shareholder current account are the first points examined. A serious tax audit anticipates these angles.

3. Employment due diligence#

Payroll carries the most invisible risk. A single employment dispute or a reclassification can weigh heavily.

• List employment contracts, specific clauses (non-compete, day-rate arrangements) and their compliance.
• Check payslips, DSN filings and adherence to the applicable collective agreement.
• Identify pension commitments, unpaid overtime and ongoing or latent disputes.
• Review the position of directors and officers (combined mandates, exit clauses, golden parachutes).

4. Legal due diligence#

You confirm the company is legally sound and that key contracts survive the change of shareholder.

• Read the articles, shareholder agreements and general meeting minutes of the last three years.
• Spot change-of-control clauses (intuitu personae) in client, supplier and commercial-lease contracts.
• Verify ownership of intangible assets: trademarks, domain names, software, licences.
• Confirm there are no undisclosed security interests (pledges, guarantees granted by the company).

5. Commercial due diligence#

Rising revenue is worthless if it rests on a single client or an expiring contract. You assess the durability of the model.

• Measure client and supplier concentration (share of the largest client, of the top five).
• Analyse the order book, the recurrence rate and the length of the client relationship.
• Check the transferability of recurring contracts and subscriptions.

The audit identifies the risks; the representations and warranties agreement turns them into contractual protection. It commits the seller to indemnify the buyer if a liability arising before the sale surfaces afterwards, or if a stated asset disappears.

Such an agreement is entirely a matter of contractual freedom: neither its duration nor its cap is set by any official text. The practices observed in spring 2026 serve only as a negotiating order of magnitude.

The underestimated risk. A warranty with no backing is only worth the seller's solvency on the day of the claim. If the seller has spent the sale proceeds, your indemnity is theoretical. An escrow of part of the price or an offsettable vendor loan remains the soundest protection.

Many acquisitions run through an acquisition holding that borrows to buy the target and repays through upstream dividends. A buyer who contributes shares to that holding before selling must understand the tax deferral mechanism of article 150-0 B ter of the French Tax Code.

Under the texts in force in spring 2026, if the contributed shares are sold within three years of the contribution, the deferral is only maintained if the holding reinvests at least 70% of the sale proceeds in an eligible activity within three years. This 70% threshold and three-year period result from the 2026 Finance Act (Law no. 2026-103 of 19 February 2026, article 11), applicable to transactions carried out from its publication.

Transitional regime. For contributions made before 21 February 2026, the former rule of reinvesting at least 60% of the proceeds within two years may still apply. The exact threshold therefore depends on the date of the contribution: this point must be settled case by case before any structuring.

1. Sign a non-disclosure agreement (NDA) before any access to sensitive documents.
2. Have the seller open a data room and list the missing items by domain.
3. Run the financial and tax audit first, as these validate the price.
4. Cross-check employment and legal findings to map the risks to be covered.
5. Translate the hard points into conditions precedent, a price adjustment and warranty clauses.
6. Have the warranty agreement and the deal reviewed by a lawyer before signing the closing.

A buyer signs a letter of intent on a services SME reporting 1.2 million euros of revenue and a comfortable cash position. Financial due diligence reveals that the cash includes a large client advance on a service not yet delivered, and that the top client represents 45% of revenue with no multi-year contract. Neither finding kills the deal, but together they justify a price adjustment, a condition precedent of signing a framework agreement with the main client, and a higher warranty cap. Without the audit, the buyer would have paid for cash that was not theirs.

• Acquisition due diligence covers five domains: financial, tax, employment, legal and commercial.
• Restating working capital and real net debt is the leading source of price gaps.
• In a purchase of shares, you inherit the company's tax and social history over the three-year reassessment period (Book of Tax Procedures, art. L169).
• The duration and cap of a warranty agreement are set by no statute: they are freely negotiated parameters.
• The deferral under article 150-0 B ter of the Tax Code requires, under the texts in force in spring 2026, reinvestment of at least 70% of the proceeds within three years for transactions after 19 February 2026.
• A warranty with no backing offers no protection if the seller is no longer solvent.