Reverse due diligence

Due diligence usually means a buyer scrutinizing the seller’s financials, contracts and operations. Reverse due diligence flips that: the seller looks into the buyer. This matters because signing a letter of intent and granting exclusivity has a real cost, and a seller who commits to a buyer who cannot actually finance the deal, or who has a history of walking away, loses valuable time and may tip off the market that the business is for sale for nothing.

What sellers typically look at

Common checks include proof of funds or financing pre-approval, references from past business dealings, a basic search of the buyer’s corporate and legal history, and a conversation about their plans for staff and operations after closing. For deals involving employees who will stay on, sellers increasingly care about whether a buyer intends to keep the team or restructure heavily.

When it happens

This usually happens early, often before a confidential information memorandum is shared, and again before granting exclusivity, since that is the point at which the seller takes the business off the market for other buyers.