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.

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