What Due Diligence Is For

1.1Buyer beware — literally

Start with a fact about English law that surprises almost everyone: when you buy the shares of a private company, the seller generally has no duty to tell you what is wrong with it. The old rule of caveat emptor — “let the buyer beware” — still does most of the work. If the seller stays silent and you fail to ask, silence is usually not misrepresentation, and the law will not imply promises about the state of the business into a share sale. You bought the shares; the shares were exactly as described; the fact that the company behind them owed a regulator an apology and a remediation programme is, on first principles, your problem.

Buyers respond to this rule with a two-part defence, and the two parts of this defence are the two halves of every private M&A deal:

• Investigate — examine the company before signing, so that you know what you are buying. That investigation is due diligence (universally, DD), and it is what this course teaches.
• Contract — make the seller give promises about the business (warranties) and, for known problems, targeted compensation promises (indemnities) in the share purchase agreement (the SPA). Then, if the picture turns out to be false, you have someone to sue. Our M&A course teaches that half.

The two halves are not alternatives; they are designed around each other. What diligence finds shapes what the contract says — and what the contract says only works properly when diligence has done its job (Chapter 12).

1.2The four doors: price it, fix it, cover it — or walk away

Diligence is not an academic exercise in describing a company. It is a decision machine. Every finding — every discovered fact that matters — leaves through one of four doors:

Watch the doors in action on our case study. In the spring of 2026 Atlas Payments Group plc, a London payments group, investigated Solaris Digital Assets Europe Ltd, an Irish crypto-asset service provider supervised by the Central Bank of Ireland. Atlas then agreed to buy it for €42 million in a transaction codenamed Project Sunrise. (The sale agreement that followed is the subject of our M&A course; you do not need it here.) The diligence report its lawyers produced is on this site in full: the Sunrise DD report. Its findings went through all four doors:

Nobody walked away from Sunrise — but buyers do, and a diligence exercise that ends in a polite “no” has succeeded, not failed. The cheapest bad deal is the one you never signed.

1.3What due diligence is not

Juniors sometimes arrive imagining DD as a guarantee that nothing is wrong. Adjust that now, because the limits define the job:

• It is not an audit. Lawyers read what the seller provides, ask questions, and search public registers. They do not re-count the money, interview every employee or test whether the software works. Diligence is a review of disclosed material plus targeted verification, not an inspection with a warrant.
• It is not exhaustive. Nobody reads everything with equal care. A review is bounded by materiality thresholds and an agreed scope — on Sunrise, matters below €250,000 generally went unreported (report §2.2). Chapter 3 is entirely about drawing these lines.
• It is not insurance. A diligence report tells the buyer what was visible in the window of time it had, from the documents it was given, as at a stated cut-off date. Risk that survives diligence is managed by the contract — or borne.
• It is not the seller's confession. The seller controls the data room. An honest seller discloses properly, not least because concealment can unravel the deal's liability caps; but the reviewing team assumes nothing is volunteered and verifies what matters. On Sunrise, two of the report's most important findings were caught by the review team, not offered in answers (Chapter 5).

1.4Whose diligence? The workstreams and the variants

“Due diligence” on a live deal is really several parallel investigations, run by different professionals who must talk to each other:

• Legal DD — this course: lawyers review title, contracts, regulation, employment, IP, data, disputes and more, and turn findings into contractual protections.
• Financial and tax DD — accountants test the numbers: quality of earnings, debt and debt-like items, working capital, tax exposures. Lawyers and accountants share the tax workstream, which is why section 10 of the report was written “with Atlas's tax advisers”.
• Commercial, technical and other DD — the buyer's own people (or specialists) assess the market, the technology, sometimes environmental or insurance matters. Legal findings often matter because of commercial facts: a termination clause is boring until you learn the counterparty is 31% of revenue.

Two variants you will meet by name. Buyer due diligence is the default: the buyer's advisers investigate for the buyer. Vendor due diligence (VDD) flips it: the seller commissions a report on its own company, typically to run a smooth auction. Bidders read the VDD report instead of each running a full review, and the report's authors owe a duty of care to the eventual buyer. And inside the buyer, “the client” includes an in-house legal team: on many deals in-house lawyers run diligence themselves, scope it, or review the external report. Everything in this course applies to them too.

1.5Where diligence sits in the deal

Diligence is the bridge between agreeing a deal in principle and signing it for real. The Sunrise timeline, which this course follows throughout:

Three things about that picture. First, by the time the data room opens the parties have usually signed a confidentiality agreement (NDA) and non-binding heads of terms recording the intended price. So diligence tests a deal already sketched, and its findings ask whether the sketch survives contact with the facts. Second, the window is finite: sellers will not run an open-ended examination, so scoping (Chapter 3) is about spending limited hours where the risk is. Third, the report lands before signing for a reason — every recommendation in it is only usable while the buyer still holds its pen.

1.6What a red-flag report looks like

The Sunrise report is a red-flag report: it reports only what could affect the price, require protection, require action, or delay the deal — not everything reviewed. The alternative, a full-scope report that describes each area in detail, still exists (lenders and regulators sometimes want it), but the red-flag format dominates private M&A because deal teams want decisions, not description. Here is how the Sunrise report summarised itself:

Notice the shape of that paragraph, because it is the shape of the whole discipline: an overall judgement first, the exceptions ranked by severity, and every exception tied to a consequence for the transaction. The report's ratings — HIGH, MEDIUM, LOW, CONDITION — are defined in its Appendix C, and Chapter 12 teaches you to write findings that earn them. One more habit to copy from professionals: the report also says what it did not find (§12.2) — a catalogue of problems is only meaningful against the reassurance that the other 1,200 documents were fine.

1.7Why this is a junior lawyer's course

Here is the open secret of due diligence: it is the part of a deal where the most junior lawyers do the most consequential work. Partners scope the exercise and sign the report. But somebody has to actually read folder 7, keep the issue log honest, chase Q&A answers that do not quite answer, re-triage the late uploads and notice that document 7.4.1 is not routine correspondence. That person is usually in their first years of practice. On Sunrise, the letter that reshaped a €42 million deal was found because somebody did a second pass of a folder everyone else considered finished (report Appendix A). The same is true in-house: a buyer's own legal team may run the whole review. None of this work is glamorous; all of it is the deal. This course teaches you to do it properly — and to understand, every time you record a finding, which of the four doors you are steering it towards.

Ready? Test yourself, then meet the people around the table — the deal team, the advisers and the engagement terms that frame the whole exercise — in Chapter 2.