Due Diligence in M&A: What Buyers Often Discover When It Is Almost Too Late

What this means

A business acquisition can look compelling at first glance - strong revenue, a recognised brand, valuable customers, or an attractive market position. But in mergers and acquisitions, the real question is not just whether the opportunity looks good. It is whether the buyer truly understands what sits beneath it.

Due diligence is where that picture becomes clearer. It is often the stage that reveals the issues capable of changing the deal entirely – from price and timing through to regulatory approvals, contract risk, employee liabilities and post-completion exposure.

The big idea

Many buyers still approach due diligence as a routine step between commercial agreement and completion. In reality, it is one of the most important legal and strategic phases of the transaction.

The real value of due diligence is not simply in gathering documents. It is in identifying what could affect value, restrict operations, delay completion, or expose the buyer to liabilities they did not expect to inherit. That is especially important in the current Australian market, where regulatory scrutiny, competition approvals, foreign investment rules, cyber risk and employment compliance issues are increasingly shaping how deals are negotiated and closed.

Who this affects

• Businesses acquiring a competitor or strategic target A transaction may look commercially obvious, but key contracts, market concentration issues, staff liabilities or operational dependencies can make the acquisition far more complex than expected.
• Investors and private groups acquiring private companies Private acquisitions often involve assumptions about ownership, compliance, tax position, earnings quality and historical liabilities that deserve much closer testing than many buyers initially allow for.
• Foreign buyers or groups with offshore ownership Where foreign investment approval is in play, timing, structure and execution risk can shift quickly. Approval pathways become central to the deal, rather than an administrative issue.

What to watch for

• Regulatory approvals can shape the transaction from the outset Competition approval, foreign investment approval and sector-specific consents should not be treated as last-minute items. They can affect whether the deal can proceed, how long it takes, and what conditions need to be built into the transaction documents.
• A target business may not transfer as cleanly as expected Not every contract, licence, approval or commercial arrangement moves seamlessly on completion. Change-of-control clauses, consent requirements and non-transferable rights can materially affect continuity after settlement.
• Hidden liabilities can sit behind a strong headline price A business may appear healthy while still carrying serious exposure. Common examples include employment underpayment issues, tax risk, unresolved disputes, data or cyber concerns, regulatory non-compliance, or security interests over key assets.
• Legal risk is not always obvious from financial performance Strong turnover and profit do not necessarily mean a business is well-governed or low-risk. Some of the most expensive issues in M&A arise from matters that do not appear clearly in headline financial summaries.
• Due diligence should influence negotiation strategy The point of due diligence is not merely to identify issues. It is to determine what needs to be fixed, what needs to be priced in, what needs specific protection in the contract, and in some cases whether the buyer should proceed at all.

Common traps

• Treating due diligence as an administrative exercise instead of a risk and value assessment
• Assuming commercial success means the target is legally and operationally sound
• Leaving approvals, consents and regulatory issues until too late in the process
• Focusing heavily on financials while overlooking contracts, employment, privacy, tax and compliance risk
• Receiving diligence findings but failing to convert into meaningful contractual protection

Why this matters

A poorly scoped or rushed due diligence process can leave buyers exposed well after the deal is done. What appears to be a manageable acquisition can become significantly more expensive once inherited liabilities, approval delays, integration issues or contractual obstacles begin to emerge.

Equally, a well-run due diligence process can create real leverage. It can give buyers a clearer understanding of value, strengthen negotiating position, identify what protections are needed, and help avoid being locked into a transaction on the wrong terms.

This is where experienced legal and commercial guidance matters. The question is rarely just whether a risk exists. It is whether that risk is material, manageable, insurable, negotiable, or serious enough to change the deal itself.

What to do next

• Assess the deal structure carefully before commercial assumptions become fixed
• Identify the major legal, regulatory and operational risk areas early
• Test what is actually being acquired, and what may sit outside the proposed deal perimeter
• Ensure diligence findings are carried through into the transaction documents and negotiation strategy
• Speak with experienced advisers before committing to price, exclusivity or completion steps

How The Quinn Group can help

At Quinn Group, we assist buyers, investors and business owners to assess the real position behind a proposed acquisition. Our role is to help clients understand where the legal and commercial pressure points sit, how those risks should be managed, and what that means for the transaction as a whole.

In matters of Mergers and Acquisitions, the most costly issues are often not the ones buyers expected. They are the ones they were never properly advised to look for. Early advice can make a significant difference to value, protection and outcome.