What is Due Diligence: Process, Types and Checklist [2026]
Due diligence is the comprehensive audit conducted before acquiring a company. Complete guide covering types, step-by-step process, costs and checklist.
Author
Samuel Navarro
Equipo Capittal
Editorial review
Equipo M&A Capittal
Financial, tax and legal review
Updated
01 June 2026
Content reviewed as markets evolve
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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 mandatory phase in any company acquisition, merger or acquisition transaction.
73%
of price adjustments in mid-market M&A transactions originate from due diligence findings, according to the CMS European M&A Study 2024.
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.
"Due diligence doesn't serve to kill deals: it serves to close them with full knowledge. 90% of the DD processes we coordinate result in completion, but with price adjustments or specific warranties that protect the buyer." — Samuel Navarro, founding partner of Capittal Transacciones
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 of €5-50M).
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 |
"Vendor due diligence is particularly useful in competitive processes: it allows the seller to identify and resolve issues before the buyer finds them, and accelerates closing timelines by 3-4 weeks on average." — Samuel Navarro, Capittal Transacciones
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?
Our team coordinates the entire process.
Frequently asked questions
Common questions on this topic.
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 to accelerate the process.
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.