Sell-Side Due Diligence in M&A: What to Expect Pre- and Post-LOI
For business owners considering a sale or merger, understanding sell-side due diligence is essential to ensuring a smooth transaction. Preparing for due diligence before receiving a Letter of Intent (LOI) can help sellers avoid surprises, maintain deal momentum, and maximize business value.
Whether you’re selling a business in Arizona, Phoenix, Scottsdale, or beyond, working with an M&A advisor or investment banker can help you navigate the due diligence process efficiently while positioning your company for the best possible outcome.
1. What is Sell-Side Due Diligence?
Sell-side due diligence is the process of preparing and organizing financial, legal, and operational information before and after a Letter of Intent (LOI) is signed. Unlike buy-side due diligence (where the buyer conducts investigations), sell-side due diligence helps the seller proactively identify and address potential deal risks before a buyer does.
2. Pre-LOI Due Diligence: Preparing for Market Readiness
Before a buyer submits a Letter of Intent, sellers must be prepared to present a clear and credible view of their business. Pre-LOI due diligence typically includes:
A. Financial & Accounting Readiness
Prepare audited or reviewed financial statements (3–5 years).
Reconcile EBITDA adjustments (removing one-time expenses or owner perks).
Analyze revenue trends, customer concentration, and gross margins.
B. Legal & Compliance Preparation
Ensure corporate structure documents, contracts, and tax filings are in order.
Identify potential legal risks, pending litigation, or regulatory compliance issues.
Review intellectual property (IP) protections, trademarks, and patents.
C. Operational & HR Considerations
Document key supplier and vendor agreements.
Prepare an organizational chart and employee contracts.
Identify key management retention plans post-sale.
D. Corporate Valuation & M&A Strategy
Determine how much your business is worth through a valuation analysis.
Identify potential buyers (strategic or financial sponsors).
Work with an M&A advisory firm to structure the best deal terms.
Pre-LOI due diligence reduces buyer skepticism and helps ensure that the deal moves forward without unexpected delays.
3. Post-LOI Due Diligence: Buyer Investigations & Negotiations
Once an LOI is signed, the buyer will begin an in-depth review of financials, operations, legal matters, and risks before finalizing the purchase agreement.
A. Financial & Tax Due Diligence
Buyers conduct detailed financial analysis to confirm the accuracy of revenue, expenses, and liabilities.
Tax compliance history is reviewed to ensure no outstanding liabilities or risks.
Working capital adjustments may be negotiated based on due diligence findings.
B. Legal & Contractual Reviews
Buyers scrutinize customer contracts, supplier agreements, and employee arrangements.
Any undisclosed liabilities or risks may affect deal terms or price adjustments.
C. Operational & Integration Planning
Buyers evaluate supply chain stability, IT infrastructure, and operational risks.
Employee retention strategies and post-merger integration planning begin.
At this stage, issues uncovered in due diligence can result in:
Price adjustments based on financial findings.
Revised deal structures (earnouts, seller financing).
Termination of the deal if major red flags emerge.
4. How Sellers Can Ensure a Smooth Due Diligence Process
Work with an M&A advisor to organize documents and identify risks early.
Be transparent about financials and operational challenges to maintain credibility.
Prepare a virtual data room (VDR) with all key documents for buyer review.
Anticipate common buyer concerns and have answers ready.
Final Thoughts
Sell-side due diligence is a critical step in selling a business, and preparing in advance can significantly impact valuation, deal structure, and buyer confidence. By proactively addressing financial, legal, and operational concerns, sellers can increase the likelihood of closing a successful deal.
For business owners in Arizona, Phoenix, and Scottsdale considering an exit, William & Wall’s investment banking team provides expert M&A advisory services, corporate valuation, and sell-side due diligence support. Contact us today to ensure you’re fully prepared for the sale process.