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Due Diligence Checklist for Merger & Acquisition in 2025

Mergers and acquisitions (M&A) are not just strategic decisions; they are transformative milestones that shape the future of companies involved. However, behind every successful M&A lies a detailed and often complex process known as due diligence. In 2025, as regulatory frameworks tighten and market dynamics shift rapidly, due diligence has evolved into a comprehensive, multi-dimensional evaluation of the target business. This includes deep dives into financial health, legal obligations, compliance, operational efficiency, human resources, IT systems, and ESG standards.

This in-depth guide by Ruchi Anand & Associates serves as your trusted resource for understanding all the major components of due diligence. Whether you’re an investor, a corporate decision-maker, or a legal advisor, this checklist will prepare you for every angle of an M&A transaction, reducing risks and enhancing decision-making

1. Financial Record Analysis

Introduction:
Financial due diligence is the foundation of any acquisition process. It allows acquirers to assess the target company’s actual financial condition, providing insights into whether the business is genuinely profitable, sustainable, and aligned with valuation expectations. In 2025, with global markets increasingly interconnected and financial practices under scrutiny, accurate financial assessment can make or break a deal.

Key Components to Evaluate:

  • Diversified revenue streams and consistency in income across multiple quarters or fiscal years.
  • Accuracy and reliability of historical and forward-looking financial performance projections.
  • Outstanding tax dues, history of compliance with direct and indirect tax regulations.
  • Loan liabilities, equity/debt ratio, and overall capital structure’s impact on valuation.
  • Liquidity, current ratios, and month-on-month cash flow stability to evaluate short-term financial resilience.

Checklist:

  • Analyze 3–5 years of independently audited financial statements for consistency and transparency.
  • Review tax returns, GST filings, and other statutory financial disclosures.
  • Scrutinize long-term debts, short-term borrowings, and existing credit lines with interest obligations.
  • Verify EBITDA, profit margins, and net income trends through detailed metric analysis.
  • Assess actual financial performance against forecasts and business plans to test assumptions.

Key Documents to Examine:

  • Full balance sheets, detailed profit & loss accounts, and quarterly financial statements.
  • Filed income tax returns, TDS certificates, and indirect tax (GST/VAT) documents.
  • Cash flow statements reflecting operating, financing, and investing activities.
  • Loan sanction letters, terms, repayment schedules, and bank reconciliations.
  • Budgets, financial models, and internal forecasting reports prepared by management.

Pros:

  • Offers critical insights into revenue reliability, margin quality, and business scalability.
  • Aids in proper valuation, helping buyers negotiate on solid financial ground.
  • Reduces likelihood of hidden liabilities or unexpected post-deal financial burdens.

Cons:

  • May require forensic financial analysis if anomalies or fraud risks are suspected.
  • Complicated and time-consuming when financial records are poorly maintained or segmented.
  • Unverified or unaudited statements can result in misleading projections and flawed valuation.

2. Legal and Regulatory Compliance Review

Introduction:
Legal due diligence ensures that the target company complies with all relevant laws, owns what it claims to own, and is free of legal disputes that could disrupt operations or dilute value. In a regulatory environment as dynamic as 2025, ensuring legal clarity is not just important—it is essential.

Key Components to Evaluate:

  • Compliance with industry-specific regulations and statutory filing obligations under corporate law.
  • Existing or potential legal liabilities arising from contractual agreements and obligations.
  • Active or past litigation that might impact future business continuity or financial penalties.
  • Ownership rights over key assets, including property, patents, software, and other IP.
  • Adherence to employment laws, labor codes, and HR policy regulations.

Checklist:

  • Validate registration documents, PAN, CIN, and incorporation certificates.
  • Review statutory licenses, permits, and sector-specific regulatory approvals.
  • Examine all business agreements, contracts, and service-level agreements (SLAs).
  • Check ownership and use rights of trademarks, copyrights, software licenses, etc.
  • Investigate any ongoing, settled, or potential legal claims or arbitration.

Key Documents to Examine:

  • Incorporation certificates, Memorandum & Articles of Association (MOA/AOA).
  • Environmental clearances, FSSAI, SEBI, or RBI licenses (if applicable).
  • Legal contracts, MoUs, JV agreements, and non-disclosure agreements (NDAs).
  • Notices received, legal correspondence, and summary of court cases.
  • IP registration certificates for trademarks, designs, patents, or domain names.

Pros:

  • Detects legal risks early, avoiding future litigation or compliance penalties.
  • Establishes asset ownership and strengthens the buyer’s claim post-acquisition.
  • Facilitates smoother regulatory clearance and investor confidence.

Cons:

  • Requires expert interpretation due to complex legal terminology.
  • Missing or outdated legal records may create deal delays or renegotiations.
  • Any existing litigation can reduce company valuation or make it ineligible for acquisition.

3. Operational Assessment

Introduction:
Operational due diligence assesses the day-to-day working of the company, its efficiency, capacity, infrastructure, and readiness for scale. It uncovers whether the business can continue delivering quality products/services during and after the acquisition transition. This component has become increasingly critical in 2025, given the rise in supply chain complexities and global delivery models.

Key Components to Evaluate:

  • Strength of supplier relationships, lead times, and quality of the procurement process.
  • Inventory management systems, demand forecasting, and capacity to meet surge in orders.
  • Integration level of ERP, automation, and internal workflows.
  • Efficiency of marketing, sales pipelines, and geographic distribution channels.
  • Structure, clarity, and frequency of internal reporting and accountability.

Checklist:

  • Examine real estate assets, factories, warehouses, and supporting infrastructure.
  • Assess vendor agreements, warehousing, delivery processes, and third-party logistics.
  • Evaluate team efficiency, process bottlenecks, and productivity benchmarks.
  • Review performance indicators and compare with peer benchmarks.
  • Explore scalability of operations and cost of expansion.

Key Documents to Examine:

  • Standard operating procedures (SOPs), flowcharts, and escalation matrices.
  • Inventory turnover reports and warehousing logs.
  • Distribution and supply chain contracts, purchase orders, and service contracts.
  • Monthly/quarterly operational dashboards with key performance indicators.
  • Network topology diagrams and IT hardware reports.

Pros:

  • Identifies inefficiencies or bottlenecks that may affect scalability.
  • Prepares the acquiring company for smoother integration planning.
  • Ensures business continuity post-acquisition with minimal operational disruptions.

Cons:

  • Difficult to capture intangible insights like team dynamics or informal processes.
  • Partial access may limit evaluation of sensitive workflows.
  • Resistance from target teams may hinder accurate assessments.

4. Human Resources and Cultural Assessment

Introduction:
A company’s greatest assets are its people. HR due diligence evaluates the talent base, leadership strength, compensation structures, and workplace culture. Especially in 2025, where hybrid work models and evolving employee expectations are the norm, people-centric insights are crucial for post-deal success.

Key Components to Evaluate:

  • Staff distribution by department, tenure, and qualifications.
  • Salary ranges, bonus programs, and employee stock option plans (ESOPs).
  • Leadership competency, retention of key personnel, and bench strength.
  • Employment policy compliance and adherence to statutory norms.
  • Organizational behavior, work satisfaction, and employee morale.

Checklist:

  • Measure attrition rates, hiring cycles, and employee retention trends.
  • Audit salary structures, incentive plans, and leave policies.
  • Identify critical roles and succession plans.
  • Check HR policy manuals and training records.
  • Conduct anonymous employee satisfaction surveys or interviews.

Key Documents to Examine:

  • Employment agreements, NDAs, and offer letters.
  • Payroll summaries, PF/ESI payment records, and leave encashment statements.
  • Organizational charts, employee handbooks, and appraisal sheets.
  • Resignation, termination, and exit interview reports.
  • Labor law compliance certificates and audit logs.

Pros:

  • Minimizes post-merger attrition and boosts employee morale.
  • Assesses cultural compatibility for smooth integration.
  • Prevents labor law violations and avoids fines.

Cons:

  • Cultural nuances are subjective and difficult to measure.
  • Sensitive employee data may be inaccessible.
  • Fear of acquisition may distort employee feedback.

5. Information Technology Systems Evaluation

Introduction:
In 2025, IT infrastructure is more than a support function—it’s the backbone of modern business. Evaluating the company’s tech stack ensures data security, operational efficiency, and seamless digital integration during M&A execution.

Key Components to Evaluate:

  • Compatibility and scalability of software, hardware, and ERP tools.
  • Cybersecurity protocols and defense against data breaches.
  • Reliability of IT vendors and service contracts.
  • Cloud hosting, data storage, and backup systems.
  • Disaster recovery and business continuity measures.

Checklist:

  • Assess compatibility with acquiring company’s platforms and security needs.
  • Review firewalls, antivirus solutions, and data encryption policies.
  • Verify support agreements, licenses, and compliance updates.
  • Evaluate capabilities of IT staff and helpdesk protocols.
  • Estimate integration time, effort, and cost.

Key Documents to Examine:

  • System architecture blueprints and compliance certificates.
  • Software license agreements and vendor SLAs.
  • Vulnerability assessment and penetration test reports.
  • Cloud usage and infrastructure costs.
  • Data privacy documentation and disaster recovery plans.

Pros:

  • Enables seamless IT integration and avoids costly delays.
  • Identifies critical weaknesses in cybersecurity or outdated systems.
  • Aligns long-term technology investments and goals.

Cons:

  • Legacy systems may be incompatible and costly to replace.
  • Inadequate documentation can obscure current IT status.
  • Cybersecurity risks may deter investors or increase insurance costs.

6. Environmental, Social, and Governance (ESG) Review

Introduction:
ESG has moved from being optional to essential. Businesses today are expected to act responsibly, ethically, and transparently. ESG due diligence helps ensure alignment with global standards, investor expectations, and future-proofing strategies.

Key Components to Evaluate:

  • Compliance with local and global environmental regulations.
  • Diversity, equity, and inclusion initiatives across leadership and workforce.
  • Corporate Social Responsibility (CSR) efforts and impact metrics.
  • Structure, frequency, and independence of governance boards.
  • Transparency in ESG disclosures and audit trails.

Checklist:

  • Verify compliance with environmental licenses and sustainability benchmarks.
  • Examine CSR investments and community development projects.
  • Evaluate board meetings, independence, and decision-making protocols.
  • Scrutinize media for ESG-related controversies.
  • Compare ESG performance with competitors and global indexes.

Key Documents to Examine:

  • Environmental audit reports and compliance certificates.
  • CSR budgets, outcome reports, and partner MoUs.
  • Governance charters, board minutes, and stakeholder meeting records.
  • DEI strategy documents and demographic breakdowns.
  • ESG performance evaluations from third-party assessors.

Pros:

  • Enhances reputation and trust among investors, customers, and the public.
  • Reduces risk of penalties for non-compliance with ESG laws.
  • Increases future investment and acquisition appeal.

Cons:

  • ESG metrics are often non-standardized and difficult to compare.
  • Poor ESG scores may require costly corrections.
  • Gaps in governance can invite regulatory scrutiny post-acquisition.

Conclusion

In 2025, due diligence goes far beyond checking balance sheets—it demands a 360-degree view of the business you’re acquiring. From people and operations to legal compliance and ESG, every angle matters. Performing thorough diligence ensures you’re not just buying a business, but investing in its potential.

Ruchi Anand & Associates offers tailored M&A due diligence services that combine legal, financial, and operational expertise to help you make confident decisions.

Let diligence be the strongest pillar of your next deal.