What is due diligence?
Due diligence is the pre-transaction or transaction-period review of a target’s financial position, tax exposures, commercial arrangements and operational health. It is the input to negotiating purchase price, working-capital adjustments, indemnities, escrow amounts and reps & warranties.
The two common forms are:
- Buy-side DD — commissioned by an acquirer or investor to validate the seller’s representations and identify risks.
- Sell-side DD (vendor DD) — commissioned by the seller to surface and address issues before going to market, controlling the diligence narrative.
Who commissions due diligence
PE / VC funds doing primary or secondary deals; strategic acquirers in domestic and cross-border M&A; family offices buying or divesting portfolio assets; promoters preparing for an IPO or strategic exit; lenders financing leveraged transactions.
What a financial & tax DD covers
A standard financial & tax DD covers:
- Quality of earnings (QoE) — recurring vs one-off income, revenue recognition, key customer concentration, EBITDA bridge.
- Working-capital normalisation — debtors ageing, inventory analysis, payable terms, peg-date adjustments.
- Net debt analysis — debt-like items, cash-equivalents, off-balance-sheet items.
- Income-tax review — open assessments, ITRs, demands, refunds, transfer-pricing exposure.
- Indirect tax review — GST returns, ITC integrity, refund claims, classifications, AAR / litigation positions.
- Statutory compliance — ROC filings, employment law, environmental.
- Related-party transactions — pricing, disclosure, leakage.
- Contingent liabilities — litigation, guarantees, undocumented commitments.
How we run the engagement
- Mandate & scope letter — transaction structure, perimeter, materiality threshold.
- Information Request List (IRL) issued to the target / seller.
- VDR (virtual data room) review — document-by-document, with structured working papers.
- Management Q&A — written and verbal sessions on red flags.
- Findings memos per workstream (financial, tax, working capital).
- Red-flag report early in the engagement so the deal team can react.
- Final DD report with quantified adjustments to purchase price, escrow recommendations and indemnity flags.
- Negotiation support — review of SPA, schedule of disclosures, post-closing actions.
What you receive
- Red-flag report (week 2–3).
- Detailed DD report (workstream-wise).
- Quality-of-earnings exhibit with EBITDA bridge.
- Net debt and net working-capital schedules.
- Tax exposure quantification with probability assessment.
- SPA-input checklist for the deal team.
How long it takes and what it costs
A standard mid-market deal (target revenue ₹100–1,000 crore) runs 4–8 weeks end-to-end. We can deliver red-flag in 2–3 weeks where deal timelines are tight. Fixed-fee or capped-time-and-materials, with travel passed through. Strict NDA at engagement start.
Frequently asked questions
Is the DD report admissible in litigation if a deal goes sideways?
It is a contractual deliverable, not a regulator-grade report. Most SPAs cap DD report reliance to the addressee. We don’t advise general third-party reliance.
Do you cover commercial / operational DD too?
We focus on financial and tax. We partner with operational and commercial DD specialists where the deal team wants an integrated package.
Can findings be shared with the target during the process?
We always run findings past management for fact-correction before the report is finalised — this protects the deal team from raising issues that turn out to have a benign explanation.
What’s the standard materiality threshold?
Typically 1–2% of EBITDA or 0.5% of revenue, whichever is lower — agreed upfront in the scope letter. Smaller items are noted but not separately quantified.
Talk to our team.
A 30-minute call with our team — no deck, no follow-up email blasts. Just a read on whether we’re the right team to run your DD.