The Complete Due Diligence Checklist for 2024

There are signs of recovery for mergers and acquisitions (M&A) activity heading into H2 2024. Global deal activity for Q1 2024 rose approximately 30% from the same period a year ago. Under the pressure of high interest rates and macroeconomic volatility, M&A activity fell to its lowest level in ten years in 2023. 

The uptick in deal activity offers optimism and confidence for continued resurgence on the horizon. It also presents a timely opportunity to review best practices and processes for conducting due diligence. Doing so ensures you are well prepared and have the intelligence you need to confidently pursue opportunities—with greater speed.  

With ongoing fluctuation and shifting variables, it’s important for investors to have the right information and resources to research and validate a potential deal. 

Below, we outline the most relevant qualitative and quantitative criteria to cover on your due diligence checklist. Well-rounded, comprehensive research minimizes informational blind spots and helps identify red flags and potential risks, giving you a competitive advantage and confidence in deploying capital. 

Due Diligence Checklist: 8 Essential Components

1. Financial Due Diligence

Components central to this category include: audited and unaudited financial statements for a particular look-back period (typically 3 and/or 5 years) to evaluate the performance, condition, and financial health of the firm. These reports also indicate cash flow, assets, liabilities, financing secured, and increasing or decreasing profitability.

Financial due diligence involves gathering historical information such as:

• Outstanding debt
• Unrecorded liabilities
• Collateral for debt
• Schedule of depreciation and amortization methods over the past five years
• Analysis of gross margins and of fixed and variable expenses
• List of the company’s internal control procedures, assets, and liabilities
• Schedule of inventory, projections, capital budgets, and strategic plans
• General ledger, analyst reports, and breakdown of sales and gross profits by geography, channel, and product type
• Planned projection vs. actual sales chart
• Capital structure

2. Operational Due Diligence

Operational facets important to review include: 

• Agreements and relationships with any subsidiaries, partnerships, or joint ventures
• Copies of contracts between the company and directors, officers, affiliates, and minimum 5% shareholders
• Loan agreements including promissory notes, financing details, and lines of credit
• All nondisclosure and noncompete agreements
• List of quotes, invoices, purchases, and warranty forms
• Options and stock purchase agreements affecting company operations
• Off-balance sheet liabilities
• Explanation of supply chain and supply restrictions
• Power of attorney agreements

3. Sales Enablement and Marketing Due Diligence

Sales enablement and marketing due diligence requires review of the following:

• List and description of competitors, including strengths, weaknesses, market position, and basis of competition
• Current ad programs, marketing budgets, and printed marketing materials
• Research on ways to get new business
• List of distribution channels, marketing opportunities, and marketing risks
• Surveys and market research on company products
• Comparative analysis
• List of coordination protocols between the sales and marketing departments
• Issues about keeping customers after the sale
• Description of the company’s credit policies,purchasing policies, supply and service agreements
• Schedule of unfilled orders

4. HR Due Diligence

Human resources due diligence involves review of the following:

• List of employees and their positions, current salaries, years of service, and total compensation over the past three years
• Explanation of the company’s salary philosophy, pay history and pay freeze information
• Resumes, history, and experience of key employees such as senior level management
• List of union affiliations and contracts
• List and description of all employee health and welfare insurance policies
• List of all independent or contract professionals that have worked with the company in the past five years
• Copies of stock purchase and stock option benefits for employees
• Worker’s compensation claims history
• Unemployment claims history
• Turnover data for the past two years
• Documents on pension plan funding and distributions
• Copies of all Occupational Safety and Health Administration (OSHA) examinations
• Results of formal and informal employee surveys
• Layoff and severance package information
• All nondisclosure, noncompete, and nonsolicitation agreements between employees and company.

5. Intellectual Property Due Diligence

Intellectual property (IP) due diligence involves review of the following:

• List of foreign and domestic patent applications
• All licensing revenue and expenses
• Copyright, trademarks, and trade names both domestic and abroad
• Description of methods used to protect trade secrets and all technical information within the company
• Patent clearance documents
• Work-for-hire agreements
• Summary of claims or threatened claims on intellectual property
• Copies of all consulting agreements, invention agreements, and licenses of intellectual property to and from the company

6. Legal Due Diligence

Critical legal insights include: 

• List of all pending litigation, unsatisfied judgments, documents about injunctions or settlements, copies of insurance policies that protect against litigation, correspondence with regulatory bodies such as the SEC or IRS, along with a review of all board minutes, shareholder minutes, and audit minutes
• Copies of federal, state, and local licenses, permits, and consent forms
• Documentation on articles of incorporation and any amendments
• List of company bylaws, amendments, and assumed names
• List of all states or countries where the company does business
• Annual reports for the last three years
• An organizational chart
• List of all shareholders and percentages owned
• Certificate of Good Standing from where the company does business
• Active status reports in the state of incorporation
• Agreements on voting trusts, subscriptions, puts, calls, options, and convertible securities

7. Property/Real Estate Due Diligence

Property and real estate due diligence requires review of the following:

• List of Uniform Commercial Code (UCC) filings
• Leased equipment
• Major equipment sales and purchases over the past three years
• Schedule of fixed assets with locations 

8. IT Due Diligence

Important considerations and frameworks to understand a company’s IT due diligence include: 

• IT roadmap
• Software licensing agreements
• Network and physical security strategies
• Data architecture and strategy
• Security breach history and management
• Compliance standards
• Cybersecurity protocol
• Business continuity and disaster recovery plans
• Security audits and penetration testing 
• Code audit and standards of operating systems and anti-virus systems 
• Employee education and QA practices 

Best Practices for Conducting Due Diligence

Successfully conducting due diligence means having the right intelligence and resources at your fingertips, to ensure no critical piece of information is missed. This includes having access to comprehensive, relevant insights to inform decision-making, drive sound recommendations, and capitalize on opportunities. 

In an age of information overload, you need a market intelligence tool that will swiftly pinpoint and surface crucial business information. The best market intelligence tools leverage artificial intelligence (AI) and automation to transform the due diligence process and broaden the scope and scale at which it is performed. AlphaSense’s industry-leading platform leverages AI and genAI to deliver market intelligence in seconds to streamline and enhance the due diligence process.

Getting up to speed on an industry or a theme to pressure-test a hypothesis is easier than ever. Tools such as our Smart Summaries leverage genAI to glean instant insights and trends across a particular sector, as well as across key companies. Our Industry Summary feature highlights top trending companies within a sector and surfaces overall trending topics, positives, negatives, and outlook across all companies in the industry. 

For in-depth company analysis, Smart Summaries also generates insights across all four key perspectives to provide analyst upgrade and downgrade outlooks, broader market sentiment, SWOT analysis, and future guidance around KPIs. These genAI summaries provide a holistic snapshot across industry, analyst, and expert perspectives to quickly validate an investment hypothesis. 

Performing financial analysis is accelerated with our time series data modeling, which filters SEC filings to access income statements, balance sheets, and more, from which you can export QoQ data for trend analysis. Our Table Explorer tool enables you to generate a historical lookback of a company’s financial performance that can also be exported to Excel for further analysis.

Streamline the Due Diligence Process with AlphaSense

AlphaSense’s vast content universe spans company documents, earnings transcripts, broker research, expert transcripts, regulatory filings, news and events for both public and private companies. Our innovative features enhance and accelerate the depth and efficiency of your due diligence: 

• Fast Navigation – AI-driven features like Smart Synonyms™ and sentiment analysis quickly surface nuanced insights for deeper due diligence. These tools allow you to quickly find relevant documents based on your sentiment, making it easy to navigate across the four perspectives found in our vast content library.
• Instant Insights – Glean instant insights from any expert or earnings transcript with Smart Summaries—the only generative AI tool that draws from a premium content universe specifically curated for investment professionals.
• User-Friendly Interface – Stay informed in real-time with automated alerts and use custom search filters to surface documents relevant to your research. For expert transcripts, AlphaSense’s user-friendly platform offers timestamped audio, making your research process even more efficient.
• Smart Search – Browse by expert title, company name, industry, topic, and utilize our other smart search features, like our AI assistant, to discover nuanced insights that will fill in research gaps in your M&A strategy for a comprehensive understanding of your target company.
• Enterprise Intelligence – Use AlphaSense Enterprise Intelligence which enables secure searches, summaries, and follow-up questions across your proprietary internal data and a vast repository of 300M+ premium external documents—all powered by our industry-leading AI for deep market intelligence.
• Sentiment Analysis – Identify and quantify levels of emotion around specific research topics. Using a boolean operator, you can search for mentions of a specific topic in a positive, negative, or neutral light (for example, “acquisition” AND “positive”) and filter by relevant keyword. Our sentiment analysis feature also assigns a numerical sentiment score to any earnings transcript in the platform, as well as the sentiment change from previous quarters’ transcripts.
• Expert Transcript Library – Dive into over 45,000 expert transcripts in our library to access proprietary insights from former executives, customers, competitors, and channel participants across a range of industries. Leverage our premium insights on thousands of public and private companies to create strategies that lead to successful M&A deals.
• Expert Call Services – Gain access to more than one million pre-qualified expert profiles spanning all industries across the globe. Our Expert Call Services allow you to quickly and inexpensively connect with experts for customized interviews to fill in any research gaps in your M&A due diligence.

Start your free trial today and accelerate your due diligence deal process.