What does “under due diligence” mean on a business-for-sale listing?

Labels such as “under due diligence”, “due diligence underway” and “under LOI” are not defined in the sources used here, so ask the broker or seller what a given label means. The words name steps in a sale that BDC describes. BDC says that once the main terms are listed in a letter of intent (LOI), the next step is thorough due diligence, and only after that can the final agreements be written that lead to closing the acquisition.

What the label may signal

BDC says an LOI can, if needed, assure the buyer a period of exclusivity, during which the seller agrees not to solicit or consider other offers for purchase without first speaking with the buyer. It also says the letter is not intended to be fully binding unless it says so, though where so provided it can create binding obligations, particularly on confidentiality and exclusivity. A label alone does not show whether a letter provides for exclusivity or when it ends.

It is not a closed sale

BDC describes due diligence as a step before the purchase agreement is negotiated, and says it lets a buyer test initial expectations and confirm that the initial valuation and letter of intent still make sense. A listing in this stage has therefore not closed. A label like “due diligence completed” is not defined in these sources either, so ask what it means for that listing. For what comes next, see what happens between the LOI and closing.

What you can ask

• Whether the broker or seller will accept a backup expression of interest, and in what form
• Whether an exclusivity period applies, and whether the seller can say when it ends
• Whether they will tell you if the current deal does not proceed
• Whether you can register interest now and receive the information package later

They may choose not to answer some of these. For how the clause works, see what an exclusivity clause is.