Where due diligence fails – Common challenges in this vital process
satindersohal, 3 February 2026
satindersohal, 3 February 2026
If you are looking to acquire or merge with a new business or group, due diligence is one of the most critical steps that you can take to minimise risk during the transaction.
However, the due diligence process itself can introduce risk if it is poorly managed. While it is designed to protect buyers from unexpected liabilities, confirm strategic value and support informed pricing and structuring, weaknesses in execution can lead to delayed deals, renegotiated terms or transactions collapsing entirely.
Understanding the most common due diligence pitfalls can help buyers take a more structured and effective approach.
A foundation of any M&A due diligence is financial analysis. Buyers must examine not only historical performance but also the quality of earnings, working capital trends and hidden liabilities.
When financial records are incomplete, inconsistent or poorly presented, buyers can overestimate value and underprice risk.
Unreliable financials can mask issues such as unpaid tax liabilities, off‑balance sheet debts and aggressive accounting practices that only emerge after the deal has been signed.
A rigorous quality of earnings review and forensic accounting techniques help uncover these issues, but they are sometimes overlooked or rushed.
Hidden liabilities are another frequent stumbling block. These can include environmental liabilities, pending litigation guarantees or undisclosed contractual obligations.
Unless due diligence teams dig deep into legal records and engage specialists, these risks may remain obscured until they become costly problems after the transaction concludes.
For example, unfinished or informal contracts with key customers or suppliers can complicate revenue forecasts and undermine confidence in future cash flows.
Compliance due diligence is a broad area that can encompass regulatory compliance, employee issues and contracts.
Failure to address these areas systematically can result in costly surprises or regulatory sanctions after completion for new owners.
A thorough legal due diligence checklist tailored to the industry and jurisdiction is essential to reveal less obvious risks, such as change‑of‑control clauses in key agreements or unresolved disputes.
Operational and cultural issues are often underestimated in due diligence yet are among the leading causes of post‑deal integration challenges.
Problems such as weak internal controls, poor IT systems compatibility and reliance on key individuals can significantly affect operational performance and value realisation.
Cultural misalignment and ineffective communication can also erode morale and lead to higher staff turnover, reducing the likelihood of achieving anticipated synergies.
Cybersecurity due diligence has become non‑negotiable in recent years as digital risks escalate.
Target companies frequently inherit significant cybersecurity vulnerabilities that can lead to financial loss, regulatory penalties or reputational damage if not properly assessed and mitigated before closing.
As many transactions are made public in the press and other sources, especially where listed, these can lead hackers to target organisations going through potential structural change post-acquisition or merger.
Don’t rush due diligence. Everyone will be excited to complete the deal, but trying to meet the pressures of your board, investors or team can compromise depth and quality, while overwhelming a seller with unfocused requests can slow progress and create friction.
A disciplined, structured approach that prioritises critical areas and uses tools, such as secure data rooms, can help maintain momentum without sacrificing thoroughness.
In essence, due diligence must be broad, deep and tailored to each specific transaction and its nuances.
Engaging experienced advisors early and adopting a methodical, comprehensive due diligence strategy are vital to avoiding these common pitfalls.
We support UK businesses through the due diligence process for acquisitions and mergers, helping identify financial, tax, operational and commercial risks early. Our team works closely with buyers to design proportionate, transaction-specific due diligence strategies that support informed decision-making and effective deal execution.
To find out how we can support your next transaction with a detailed due diligence strategy, please get in touch with our Corporate Finance team.
