Acquisition Due Diligence: The Operator's Checklist

Most first-time acquirers treat diligence as a confirmation exercise: they agree a price, then send in the accountants to check the numbers add up. That gets the sequence backwards. Diligence is not how you verify a deal you have already decided to do — it is how you decide whether to do it, and at what price. The findings are the raw material for the negotiation, not a formality after it.

This guide sets out an operator's checklist for acquisition due diligence when buying a UK business: the workstreams to run, the red flags to watch for in each, and — because it is where most of the value now sits — how to test the intangible assets the accounts never show. It is written for owners and operators buying a business turning over roughly £1m to £50m, whether that is a first acquisition or the next in a buy-and-build.

What diligence is actually for

Diligence answers three questions. Are you buying what you think you are buying? What could go wrong after completion? And given the answers, what should you pay and how should you structure it? Everything in the checklist below serves one of those three.

The reason the intangible figure matters is that a conventional diligence process tests the ten percent thoroughly and the ninety percent barely at all. Accountants confirm the earnings; lawyers confirm the contracts; and the brand, the customer relationships, the technology and the key people — the things that actually produce those earnings — get a paragraph in the information memorandum and little scrutiny. That is where deals go wrong after completion.

The workstreams at a glance

A proportionate diligence process runs six workstreams in parallel. The financial, legal, commercial and tax streams are the ones most buyers know. People and intangibles are the two most often skimmed — and, in a modern business, the two most likely to contain the risk you did not price.

Diligence workstreams

The first four are covered well by any competent adviser. This guide gives them enough to brief the work and read the reports critically — then spends most of its length on the two that determine whether the deal delivers.

Financial diligence: is the profit real?

Financial diligence tests whether the earnings you are paying a multiple of actually exist and will persist. The headline output is a quality of earnings analysis — a normalised view of profit stripped of the owner-specific costs, one-offs and accounting choices that flatter the last set of accounts.

Three things do most of the work. First, normalised EBITDA: adjust the reported figure for the owner's above-market salary, personal expenses run through the business, one-off gains and discontinued lines, so you see the earnings the business will actually generate under new ownership. Second, working capital: agree a normal level so the seller cannot strip cash out of the business the day before completion and leave you to fund the gap. Third, debt and debt-like items — not just bank loans, but deferred consideration on the seller's own past deals, unfunded pension obligations, overdue tax and finance leases, all of which reduce what the equity is worth.

Other red flags: a sharp uplift in profit in the final year before sale (often costs deferred and revenue pulled forward to dress the numbers); customer prepayments treated as revenue; and capitalised costs that should have been expensed. None of these is necessarily fatal — but each is a reason to adjust the price or reshape the structure.

Legal diligence: does it transfer?

Legal diligence establishes that you will actually own what you are buying and that the business can keep operating the day after completion. For an operator, the highest-value part of this stream is not the volume of documents reviewed — it is the search for the clauses that trigger on a change of ownership.

Commercial diligence: will the market still be there?

Commercial diligence looks outward. The financial stream tells you the earnings were real last year; the commercial stream tells you whether they will be real next year. Customer concentration is the first thing to test: if a single customer is 30% of revenue, you are underwriting that one relationship, and you need to know how durable it is, who owns it inside the business, and whether it has a change-of-control clause.

Beyond concentration, commercial diligence covers the pipeline and its conversion, the competitive position and any threats to it, pricing power and whether it is sustainable, and the market's own trajectory. A business growing only because its market is growing is worth less than one taking share — because the tailwind can reverse.

That example is the point of running the streams together. No single workstream caught the risk — the financial numbers were clean, the legal review found no adverse contracts because there were no contracts, and only when the commercial and people streams were read against each other did the real exposure appear.

Tax and people: the two that inherit liabilities

Tax diligence identifies what liabilities and reliefs come attached to the deal. In a UK share purchase you inherit the target's entire tax history, so the review covers historical corporation tax, VAT, PAYE and — a frequent trap in smaller companies — whether contractors have been correctly treated for employment-tax purposes. It also confirms the reliefs you are counting on, from capital allowances to any group relief, and flags the stamp duty payable on the shares (0.5% in the UK). A tax indemnity in the sale agreement typically backstops pre-completion tax exposures — but you only know to ask for it if diligence surfaces them.

People and HR diligence answers a question the spreadsheet never captures: who has to stay for this to work? That means identifying key employees and whether they are locked in with notice periods and restrictive covenants, checking employment terms and any TUPE implications, reviewing pension obligations, and testing morale and flight risk. In a people-heavy or founder-led business, the retention of two or three individuals can matter more than any line in the accounts.

Intangible-asset diligence: the ninety percent

Here is the workstream most acquirers run last and least — and where, in a modern business, most of the value and most of the risk actually live. If roughly ninety percent of the enterprise value is intangible, then a diligence process that spends ninety percent of its effort on the balance sheet is looking in the wrong place.

The disciplined way to run it is to work through The Opagio 12 — the twelve intangible value drivers — as a diligence checklist, asking of each one: do you own it, does it transfer, and does it survive the change of ownership? The table below reframes each driver as the buyer's question.

The Opagio 12 as a diligence lens

Four of these deserve special attention because they are where operators most often overpay or inherit an unpriced risk.

Does the brand transfer? If the reputation is really the founder's personal standing — their name on the door, their relationships, their profile — then the brand may not survive their departure. Test whether the brand is owned by the company (registered, not just used) and whether customers buy the business or the person.

Is the technology owned? Founders frequently believe they own software that was in fact written by a contractor who never signed an IP assignment, or that depends on open-source components with licence obligations, or that sits inside one departing engineer's head. Confirm ownership, not just possession.

Is IP title clean? Trademarks used but never registered, domain names held in a founder's personal account, content and designs created by freelancers without assignments — each is a gap a seller's lawyers will treat as your problem to warrant. Map the chain of title on everything you would separately value.

Who is the key person, and what triggers on change of control? The two questions merge here. The most valuable relationships and the most critical knowledge are often held by one or two people, and the contracts that matter most may contain clauses that fire the moment ownership changes. Both are retention-and-consent problems you must solve before completion, not after.

This checklist covers the operator's view of intangible-asset diligence. For the full technique — how to audit each asset class, what evidence to demand, and how to build a valuation you can defend — see the intangible-asset diligence deep dive.

How findings reshape the deal

A finding you cannot act on is trivia. The value of diligence is that each material issue maps to one of three levers, and knowing which lever to pull is where operators earn their return.

Price. The cleanest response to a quantifiable problem is to pay less. Overstated normalised earnings, a working-capital shortfall, or an inherited liability all translate directly into a lower headline number.

Earn-out. Where the risk is a future uncertainty rather than a present defect — will the concentrated customers stay, will the founder's relationships transfer, will next year's revenue hold — the answer is to defer part of the consideration into an earn-out that pays only if the outcome materialises. This is how the services-business example above resolved: the retention risk became a two-year, retention-contingent payment.

Warranties and indemnities. Where the risk is a specific, identifiable exposure — an unregistered trademark, a live dispute, a tax uncertainty — you take a warranty (a contractual promise the fact is true) or an indemnity (a promise to reimburse a specific loss). Every gap that legal diligence finds is either a price cut or a warranty; the seller's lawyers will push it toward a warranty, and yours will push back toward the price.

The seller, incidentally, knows this. The best-prepared vendors run reverse due diligence on themselves before going to market, fixing the gaps you would otherwise use to chip the price. When you meet a target that has done that, expect a tighter process and less room — and treat it as a signal the business is well run.

The checklist on one page

Run the six workstreams in parallel, not in sequence. Read them against each other, because the risks that matter most — the concentrated customer who is really the founder's relationship, the technology that one engineer holds in their head — only appear where two streams cross. Test the ninety percent as hard as the ten. And treat every material finding as a decision about price, earn-out or warranties, because a finding you do not act on was never worth the cost of finding it.

If you are earlier in the process, start with the buying a business hub and, before you fix a number, read how to value a business you want to buy. When you are ready to see a target's intangible value the accounts leave out, book a demo of Opagio Intangibles — or explore what Opagio Intangibles does first.

For a plain-language primer, see what is acquisition due diligence.

Ivan Gowan is Founder and CEO of Opagio. He spent twenty-five years in fintech, including at IG Group, before building Opagio to help operators see and evidence the intangible value in the businesses they buy and build. Meet the team.