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What is a Due Diligence Questionnaire + Sample Checklist

Hundreds of investment bankers, law firms, and M&A brokers turn to DealRoom when conducting due diligence.

The feedback provided by these M&A practitioners helped us to collect needed information and compose the due diligence questionnaire that can be useful in your future transaction too.

But let's start from the beginning.

What is a due diligence questionnaire?

A due diligence questionnaire (often dubbed a “DDQ”) is a list of frequently asked questions during a M&A transaction or investing. These questions are broken down into categories and work to provide key information to the buyer.

While the DDQ will vary depending upon the deal type and target company, there are basic categories practitioners have learned to investigate and baseline questions practitioners have learned to ask.

Using a due diligence questionnaire can allow the acquirer to get a jump on the lengthy due diligence process by anticipating the information it will need to gather.

Conversely, if the target has ever been on the buy-side, it can turn the due diligence questionnaire on itself and get a headstart on preparing information to share with the acquirer.

What does a due diligence questionnaire cover?

A due diligence questionnaire is useful in any type of M&A transaction. It typically covers the following categories:

  • Company Information
  • Financial Information
  • Employee Information
  • Legal Information
  • Product Information
  • Consumer Information
  • Intellectual Property Information
  • Physical Asset Information

Depending upon the target and the transaction, additional categories, including a “miscellaneous” category, may be warranted. 

Specific due diligence questionnaire categories & questions

1. Company due diligence questionnaire:

Clearly, the buy-side needs to have a comprehensive understanding of the target. Foundational company questions should include:

  1. What is the organizational structure of your company?
  2. Can you provide diagrams and charts of your corporate structure?
  3. What are your current by-laws?
  4. Can you provide a list of all subsidiaries?
  5. Who are the security holders?
  6. Can you provide us with your stockholder agreements?
  7. Who are the key players in your organization?
  8. What are their roles and how long have they been with you?
  9. Who are your board members and stakeholders and what has their feedback been over the last three to five year?

2. Financial due diligence questionnaire:

Financial information is often the cornerstone of due diligence and many, many financial documents must be collected. Here are baseline questions to begin the process:

  1. What are your operating costs?
  2. What do your budget and operating plans consist of? What tools do you use?
  3. What are your accounting policies?
  4. What are your investment policies?
  5. What are your capital expenditures for the next 12 months?
  6. What is your inventory cost system?
  7. What are your cash management practices and controls?
  8. Do you have any debt?
  9. Do you have any existing financial arrangements and agreements?
  10. Can you provide us with income statements and balance sheets?
  11. What is the breakdown of your sales and gross profits by product type?
  12. What are your major growth drivers?

3. Employee due diligence questionnaire:

This category is often labeled “Human Resources” or HR as the HR department will most likely be answering these questions. In addition to learning about employees in the above “company information” category, the buyer will also want to ask:

  1. What do current employee contracts look like?
  2. What kind of non-disclosure and non-compete amendments are in your contracts?
  3. What is the severance agreement?
  4. What are the benefit plans including pension, bonus, stock options plans, stock bonus and health plans?
  5. How are employees recruited?
  6. What is the headcount of employees at each location? (if  applicable)
  7. Is there an employee handbook or manual? 
  8. How do you evaluate and survey employees? Can you provide the latest survey results and/or evaluations?

Note: One of the most efficient strategies for this category is to ask for an overview of all employees, the length of their employment and their job descriptions. 

4. Legal due diligence questionnaire:

  1. What types of permits and licenses are required to run your business?
  2. Are there any contracts that restrict your right to conduct business?
  3. Have you been involved in any litigation? Are you currently involved in any litigation?
  4. Have any of your products been recalled?
  5. What are your compliance programs and policies?
  6. Are you at all restricted from doing business under OFAC (or other types of) regulations?

5. Product due diligence questionnaire:

  1. What are the specific products and services you offer?
  2. Do you have any products or services in development?
  3. Who are your suppliers?

6. Consumer due diligence questionnaire:

  1. Over the last three years, who are your top customers? How did you acquire them?
  2. What do your customer contracts consist of?
  3. How are sales channels developed?
  4. What is the breakdown of sales and gross profits by geography, product type, and sales channels?
  5. Who are your top ten customers for the last two fiscal years?
  6. Can you provide details about the products/services they buy and the length / nature of your relationships?
  7. Which customers have been lost over the last two fiscal years?

7. Intellectual Property due diligence questionnaire:

Intellectual property (IP) can be a complicated matter during M&A, and if not fully investigated and understood, can lead to litigation. 

  1. What trademarks and patents do you currently have?
  2. What websites and domains do you currently own?
  3. What is your process for developing IP?
  4. Do you have any IP owned by a third party?
  5. Are you currently developing new IP?

8. Physical Asset due diligence questionnaire:

  1. What real estate do you own?
  2. Do you own or have any leases on equipment?

Start using due diligence questionnaire

You can utilize DealRoom due diligence questionnaires from our library of templates by clicking the banner below:

due diligence questionnaires

There you can find:

and more.

How does the due diligence process look like?

The due diligence process begins with refining and reviewing the overarching goals of the deal.

What you are hoping to gain from this transaction must be clearly articulated and remain in the forefront of the team’s mind throughout the rest of the due diligence process, working as a guiding force.

Second, a thorough review and analysis of business financials takes place.

As seen below, the amount of financial information and documentation that must be collected and studied requires a significant amount of time and attention to detail. This process is called financial due diligence.

This thorough review and analysis is then done for the other areas of the business, such as

  • customary structure information,
  • employee information,
  • legal documents,
  • real estate,
  • intellectual property (among other categories).

Usually people utilize data room or special due diligence software like DealRoom to conduct due diligence. Here is how the requests and documents collection can look there.

due diligence process

Additionally, at this point in the process, interviews, surveys, and on-site visits are often leveraged to gain a broader, perhaps even more genuine, understanding of the target company.

Consequently, at this time a real dialogue occurs between the buy-side and the sell-side.

An important outcome of this stage is the buy-side should end with a better overall understanding of the company’s true value and how/if it will meet the buy-side’s goal. 

It should also be noted the sell-side (also known as the target company) plays a major role in how much time this part of the process takes - its ability to share information quickly and respond to requests in a timely manner helps this stage of the due diligence process move along.

Next, the buy-side will review the target’s business model and plan, focusing on if the two companies are a good fit and keeping an eye on what integration might look like.

Finally, an offer is formulated and risks are fully analyzed and brought to light. 

Final thoughts

Due diligence is designed to mitigate risk, and a due diligence questionnaire can help begin the process.

Certainly, the DDQ outlined above is simply a framework to use during initial due diligence work. The DDQ can be fleshed out depending upon the specific target involved in the deal.

While the DDQ does not eliminate all the work and investigation involved in diligence, it can identify early risks and red flags, allowing the buyer to decide if it would be advantageous to proceed. 

due diligence software

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