Due Diligence Costs & How to Assemble Your Due Diligence Team
I launched DueDilio in April 2021 with the goal of streamlining the M&A due diligence process. DueDilio is an expert marketplace connecting business buyers and investors with quality, pre-vetted due diligence service providers. Our deep network of independent professionals, boutique and mid-size firms, and subject-matter experts specialize in technology, finance, legal, operations, and other types of diligence projects. Our typical clients are searchers, independent sponsors, SMBs, and private investors pursuing deals in the range of $1M - $25M transaction value.
Over the last 9-months, I have worked with over 95 clients helping them address their due diligence needs. Here’s what I learned about sourcing and pricing due diligence service providers:
First, let me cover my...behind. The information I share below is high-level and mostly applies to standard transactions that I have seen. These costs and descriptions absolutely do not apply if you’re buying a multinational cryptocurrency trading exchange with 2k employees, 200k sqft of real estate, multi-currency assets, plus a laundromat business subsidiary based in Cyprus. ;)
With that disclaimer out of the way, let’s dive into it…
Financial Due Diligence
Financial due diligence is one of the most requested types of projects that we see at DueDilio.
Here’s what we see most often:
Basic Financial Verification: Great if the buyer has experience in the industry and just wants a high-level review or second set of eyes to look over the numbers. Review a year or two of financials to spot any surface-level anomalies. Spot check business-specific financial metrics. Produce a high-level report highlighting any red flags. The most cost-effective solution is to hire an independent professional who has significant accounting experience. In some instances, this can even be produced by an offshore provider.
Cost: $1,500 - $4,000
Standard Financial Due Diligence: Review at least three years of financial statements and produce a detailed report. Validate EBITDA, Proof of Cash Flow, and other financial metrics. Typically performed by CPA or accountant. Can be produced by an independent professional or a boutique firm. Some offshore providers can also produce this type of analysis.
Cost: $5,000 - $8,000
Quality of Earnings: This is one of the most detailed and time-consuming reports to produce. It is often required by lenders and/or investors. This is a comprehensive due diligence report including Proof of Cash, validation of key financial metrics, spot trends, and anomalies. The truth is that many independent professionals simply will not take on this type of detailed work and you may have to hire a boutique or mid-size firm.
Cost: $8,000 - $25,000
Business Valuation: There are many reasons why a business buyer or seller may want to request an independent third party business valuation. This can be performed by knowledgeable independent professionals as well as boutique and mid-size firms.
Cost: $3,500 - $10,000
Legal Due Diligence
We have a lot of attorneys in our network and here is what we typically see for standard transactions that are < $15M.
Entity Formation: Realistically, you should be able to do this yourself through Stripe Atlas, Mercury, Rocket Lawyer, or LegalZoom. If you do want help, an independent attorney would be the best and most cost-efficient option.
Cost: $500 - $1,500
Standard Deal Documents: This includes drafting of an LOI, Asset Purchase Agreement, Assignment and Assumption Agreement, and Bill of Sale. Typically will include a few revisions and one or two calls with the attorney. The most cost-effective solution is to hire either an independent attorney or a smaller firm with attorneys who have Big Law experience.
Cost: $2,500 - $25,000
Legal Due Diligence: Services performed can vary widely but typically include a review of merchant processing account, all corporate governance documents, secretary of state search, insurance review, and review of all employment/independent contractor agreements. Again, this can vary widely depending on the deal type and other factors.
Cost: $4,000 - $25,000
Website Due Diligence: Most relevant for content/affiliate/display websites, blogs, newsletters, and most media businesses. This analysis typically involves examining the website infrastructure, traffic, conversions, user acquisition, website structure, Google Analytics and Search Console, competitors, industry benchmarks, and other factors. This is a specialized type of analysis and should be performed by someone with the right background and experience. We have many independent professionals who can perform this.
Cost: $100 - $1,000
Codebase & Tech Stack: This is most relevant for software and SaaS businesses. Typically includes a thorough review of the codebase, architecture, and infrastructure. The deliverable can be a simple red flag report or a more detailed analysis.
Cost: $2,000 - $15,000
Cybersecurity: Especially important for finance, healthcare, or regulated businesses. Can include a simple review of policies and procedures to more hands-on penetration testing. Requires a very specialized skill set and someone with the proper certifications.
Cost: $7,500 - $25,000
Other Types of Due Diligence
At DueDilio, we currently have 20+ types of due diligence that our service providers offer. I won’t list all of them but below is a quick summary of costs.
- Deal Negotiation & Structuring: $500 - $2,000
- HR/Benefits/Insurance: Free - $10,000
- Sales/Marketing: $400 - $5,000
- Logistics/Warehousing/3PL/Fulfillment: $5,000 - $10,000
- Client/Employee Interviews: $80 - $200 per interview
- Background Check: $500 - $1,500
- Subject-Matter-Experts: $350 - $1,200 per hour
Questions? Just reach out for a FREE consultation with DueDilio.
Assembling Your Due Diligence Team
DueDilio is a free platform that connects business buyers and private investors with quality, pre-vetted due diligence service providers. Before DueDilio, clients would have to spend several weeks researching service providers, collecting proposals, and finding the right solution. Today, the whole process can take as little as three business days. Simply go to our website and submit your project. Within two business days, we will present you with proposals from multiple service providers. After reviewing the proposals, we answer questions and connect you with the provider of your choice.
DueDilio is free to use and there’s never an obligation to hire anyone.