What is Due Diligence: Process, Types and Checklist [2026]

Last updated: March 2026

Due diligence (DD) is a comprehensive investigation and audit process conducted by a potential buyer of a company to verify the accuracy of information provided by the seller, identify hidden risks and validate the agreed valuation. The term originates from Anglo-Saxon law and is a standard phase in many company acquisitions, merger or acquisition transaction.

Due diligence findings can affect the price, the net debt and working-capital adjustments, the warranties in the SPA or the conditions required before completion. The effect depends on the nature and quantification of each finding; there is no reliable universal percentage.

Due diligence serves three essential functions: it confirms that the company is worth what has been agreed, identifies risks that may translate into future contingencies, and provides the buyer with the necessary information to plan post-closing integration.

Types of due diligence in M&A transactions

DD Type	What it analyses	Who performs it	Typical duration
Financial	EBITDA, cash flow, debt, working capital	Auditor / Big Four / boutique	4-6 weeks
Tax	Taxes, tax contingencies	Tax adviser	3-5 weeks
Legal	Contracts, litigation, property	Law firm	4-6 weeks
Employment	Workforce, agreements, employment disputes	Employment lawyer	2-4 weeks
Commercial	Market, competition, customers	Strategy consultancy	3-5 weeks
Environmental	Licences, contaminated land	Environmental engineer	4-8 weeks
Technology (IT)	Systems, cybersecurity, software IP	IT consultancy	2-4 weeks

Due diligence process step by step

Phase 1: Preparation (1-2 weeks)

The buyer and their advisers define the scope, select specialist teams and prepare the request list. The seller opens the virtual data room (VDR).

Phase 2: Document review (2-4 weeks)

Teams review documentation in the data room. According to Datasite (2024), a mid-market DD generates an average of 150 to 300 questions.

Phase 3: Site visits and meetings (1 week)

Advisers visit the facilities, meet with the management team and, in some cases, with key customers.

Phase 4: Findings report (1-2 weeks)

Each team prepares a report classifying issues into red flags, yellow flags and green flags.

Phase 5: Adjustment negotiations (1-2 weeks)

Findings translate into price adjustments, earn-out mechanisms, escrow retentions, or specific warranties in the SPA.

4-8 weeks

Average duration of a complete due diligence in the Spanish mid-market transactions.

Cost of due diligence in Spain

Transaction size (EV)	Financial + Tax DD	Legal + Employment DD	Total indicative
€1-5M	€15,000-30,000	€10,000-20,000	€25,000-50,000
€5-15M	€30,000-60,000	€20,000-40,000	€50,000-100,000
€15-50M	€60,000-120,000	€40,000-80,000	€100,000-200,000

Due diligence checklist: essential documentation

Financial

• Audited annual accounts for the last 3-5 years.
• Monthly trial balances for the current year.
• Breakdown of EBITDA by business line.
• Detail of financial debt.
• Customer and supplier ageing.
• Budget and business plan for 3-5 years.

Tax

• Corporate tax, VAT and income tax returns for the last 4 years.
• Previous inspection reports.
• Related party transactions and their documentation.
• Tax incentives applied.

Legal

• Articles of incorporation and current bylaws.
• Minute book and shareholder agreements.
• Contracts with main customers (top 10-20).
• Contracts with critical suppliers.
• Licences, permits and authorisations.
• Ongoing litigation and known contingencies.

Employment

• Workforce with seniority, category and salary.
• Applicable collective agreement.
• Management team contracts.
• Pending employment disputes.
• Occupational health and safety plan.

Frequently asked questions about due diligence

How long does due diligence take?

In the Spanish mid-market, between 4 and 8 weeks. For smaller transactions (€1-5M), 3-4 weeks. More complex ones may require up to 12 weeks.

Who pays for due diligence?

Usually the buyer. The exception is vendor due diligence (VDD), where the seller bears the cost.

What happens if due diligence finds problems?

Red flags can break the deal. Yellow flags translate into price adjustments (5-20%) or warranties in the SPA. According to CMS 2024, 73% of transactions experience some adjustment derived from DD.

What is vendor due diligence?

It is DD performed by the seller themselves before putting the company up for sale to identify and resolve issues in advance.

Sources and references

• CMS. European M&A Study 2024.
• Datasite. Global M&A Intelligence Report 2024.
• Dealsuite. Mid-Market Monitor Spain, H1 2025.
• AECA. Practical guide to financial due diligence, 2023.

Need to conduct or prepare due diligence?

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If you are considering a sale, here is how a company sale process works in the Spanish mid-market, and you can calculate how much your company is worth as a first step.