Hitting the due diligence timeframe sweet spot

Amid global uncertainty, M&A due diligence periods are getting longer as dealmakers seek to reduce risks. However, for both large companies and SMEs, long due diligence periods run the risk of creating deal fatigue and have been shown to reduce the likelihood of successful completion.

Note that rushing through due diligence also presents a multitude of risks. The sweet spot lies somewhere in between, combining speed, efficiency and thoroughness. In this piece, we examine the risks of too short or too long a due diligence period and provide a framework for hitting the sweet spot.

A recent study from Bayes Business School and SS&C Intralinks tracked more than 900 M&A deals conducted between 2013 and 2023, examining the link between the length of due diligence and the ultimate success of a deal over a period in which the average due diligence period increased from 124 days (prior to 2013) to 203 days.

The study split due diligence periods into three groups: short due diligence, which averaged 49 days; medium due diligence, averaging 139 days; and long due diligence, averaging 429 days. The crucial finding from the report was that deals with medium-length due diligence processes averaging 139 days had the highest rate of success, the lowest premiums and delivered the best shareholder returns.

Shorter due diligence times were associated with a lower rate of completion, while longer due diligence times ran the risk of bogging down transactions and leading to one or the other party walking away from what may have become an overly-complex deal. Both shorter and longer due diligence times were associated with higher premiums and longer average resolution periods.

The study’s findings indicate that there is a sweet spot between a rushed, risky due diligence process and a more forensic process that ultimately takes too long and risks harming the deal. The report describes this in-between as the “Goldilocks effect”, a happy medium where due diligence is neither too short nor too long.

It is important to note that the Bayes and Intralinks report largely focuses on bigger, global M&A transactions involving listed businesses. These are inherently complex deals in which due diligence is bound to be longer in comparison to, say, an acquisition of a private UK SME, purely due to the bigger scale of the target business, the greater finances involved and the heightened risk that failure would pose.

So whereas 139 days (roughly 4 and a half months) is deemed a medium-length process in the report for larger organisations, this would likely be very much on the longer end of a due diligence process for a small to medium-sized UK limited company.

Despite these fundamental differences, however, it is worth examining whether the logic of the due diligence sweet spot also applies to smaller, private company acquisitions. This is particularly pertinent at a time when the tension between seeking to close transactions quickly or to alleviate risk through increasingly vigorous due diligence could drive smaller buyers towards either shorter or longer due diligence processes.

Why is due diligence taking longer?
As highlighted by the Bayes and Intralinks study, due diligence is now taking significantly longer than it was a decade ago. In the report, this is attributed to factors including increasingly stringent regulations (for example, GDPR), the growing prominence of ESG factors in decision making, geopolitical uncertainty (such as Russia’s war in Ukraine or the ongoing tension between the US and China) and the increasing digitisation of the dealmaking process.

While the report highlights that due diligence times were increasing prior to 2020, it also showed that there was a particular acceleration in the trend post-2020. Prior to 2020, the average due diligence period was 189 days, but since then this has soared to 247 days.

This suggests that the impact of the COVID-19 pandemic may have played a significant role in due diligence taking longer, due to both the heightened risk that the pandemic delivered, as well as the fundamental shift to working practices that occurred as a result of lockdowns, remote working and subsequent policies such as social distancing.

It is understandable, in the face of these major global uncertainties, that dealmakers would approach transactions with greater caution and undertake more thorough due diligence processes in order to address and mitigate the heightened risk that has been present over the past decade or so.

However, the Bayes and Intralinks study (along with other research) suggests that such exhaustive processes may actually be counterproductive and that dealmakers could improve their chances of success by conducting their due diligence in a more focused, timely manner, while still avoiding the risks posed by a rushed, sloppy or incomplete due diligence approach.

As dealmakers adjust to a period where it seems that heightened risk is the norm, rather than a temporary aberration, learning how to hit the sweet spot between a due diligence process that is too short and one that is so long that it risks deal fatigue could prove to be an invaluable asset.

How about in SME deals?
While the Bayes and Intralinks study focuses more on larger acquisitions, it is widely reported that economic and geopolitical uncertainty is lengthening deal times across the board, meaning that even smaller deals for limited companies are taking longer than they may previously have done.

Naturally, as with larger acquisitions, SME buyers will seek to assuage doubts, assess risks and uncover potential pitfalls during their due diligence processes, meaning that these are likely to be taking longer.

Furthermore, as with the deals examined in the Bayes and Intralinks study, research suggests that there is a sweet spot for SME due diligence times lying somewhere between longer and shorter processes.


According to a report from Allan Taylor & Co, small business due diligence periods can often last anywhere from a month (30 days) to up to 3 months (90 days), with the average being around 45 to 60 days.

There is nothing definitive to say that it is inherently negative to undertake due diligence in just 30 days or in as long as 90 days, but it is logical to conclude that the 45-60 day average represents something of a sweet spot for small business acquisitions - a balance of speed and thoroughness.

The Allan Taylor & Co report highlights the importance of preparation when aiming to undertake due diligence quickly, whilst also cautioning about the potential for deal fatigue if due diligence takes too long, describing it as a real problem and “one of the primary reasons deals fall apart.”

Avoiding deal fatigue
Deal fatigue is the ultimate risk that is posed by longer due diligence times and longer deal timeframes in general. While some delays are unavoidable and it is understandable that buyers and sellers feel a heightened need to be thorough in their preparations, it is an issue that both parties need to work to avoid.

Allan Taylor & Co put it simply, “time kills deals”. If deals drag on, it becomes increasingly likely that the deal will fail to complete, likely due to either the buyer, the seller, or both walking away from the transaction. Due diligence, as one of the most complex and arduous stages of the deal process, is naturally a critical point at which deal fatigue can set in.

Once a small business due diligence process begins to drag past the 90-day mark, the likelihood of successful completion will begin to recede. In a 2015 report citing internal data, M&A advisory firm Investment Bank stated that the probability of deal closures drops down to less than half once due diligence begins to run past 90 days in an SME acquisition.

While this data is a decade old and there is likely to be a degree of acceptance on both the buy and sell side that due diligence now takes longer amid heightened risks, it still demonstrates the risk that fatigue poses to a deal if processes take too long.

Avoiding this requires work from both buyers and sellers. For sellers, preparation is critical, both in terms of being emotionally and practically prepared to transfer ownership of the business and in terms of having all the necessary documents (financial and otherwise) organised and ready to send to potential buyers.

For buyers, advanced planning can help to ensure that due diligence is thorough without dragging on, with the key being prioritising the quality of due diligence, rather than the duration of the process. Having a checklist of key issues to examine during due diligence, questions and issues to discuss with the vendor and, for buyers planning to make multiple acquisitions, documented due diligence processes can all contribute to a time-effective, high-quality due diligence approach.

Critically, building a highly-skilled deal team with a depth and breadth of experience and expertise will enable a buyer to proceed quickly and efficiently. By delegating and clearly defining roles within the deal team, each member will know their responsibilities and be able to focus on executing them thoroughly.

Ensuring that due diligence doesn’t drag on may also sometimes mean buyers accepting an element of risk and acknowledging that they aren’t able to find out everything about a target business in such a limited timespan. If the fundamentals of the business are strong and due diligence doesn’t flag up any major issues then there is probably more to lose than gain by dragging the process out.

Even if a buyer is able to uncover more risks or hidden issues, potentially putting them in a position to negotiate a lower fee or more favourable deal structure, they also run the risk of irritating the vendor and maybe even missing out on what could have been an attractive acquisition.

Seeking acquisitive growth in a challenging retail market, Open Star Retail Group identified successful Yorkshire giftware wholesaler Town Square Gifts Gifts Ltd, as an ideal strategic fit. Both sides agreed key terms and began due diligence, with Open Star Retail opting for a forensic, multi-disciplinary approach due to serious concerns about the level of risk present across the retail sector.

The process ultimately dragged on for over five months as every contract, lease, supply chain agreement and tax consideration was revisited multiple times with external specialists. On several occasions, Open Star Retail used even minor findings to attempt to re-trade the deal and knock relatively small amounts off the agreed upon purchase price.

As weeks passed, the seller became increasingly frustrated by repeated document requests, shifting issue lists and persistent attempts to reduce the purchase price and change the deal structure. Management attention drifted, customer confidence eroded and the seller began fielding unsolicited offers.

After 150 days, with no sign of completion, the seller withdrew from negotiations and accepted a rival bid. According to company insiders, despite management initially believing in the fit, the months of uncertainty led to a loss of focus and momentum, and even increased staff turnover.

Open Star Retail’s attempts to eliminate every conceivable risk inadvertently led to deal fatigue, trust being lost, a missed opportunity and a potential competitive loss for both companies. The case highlights the importance of striking the right balance and adhering to a pragmatic, efficient timetable, as well as showing how excessive caution and indefinite risk assessment can be just as damaging as proceeding recklessly.

Risk factors that can affect due diligence time

Complexity of the business
Factors such as having a greater number of business lines, a wide geographic presence or operating in a highly regulated sector contribute to a business being more complex and requiring a more far-reaching and extensive due diligence process.

Quality of record keeping
If a vendor has not prepared their documentation (e.g. financial records) in a manner that accommodates an efficient due diligence process then the buyer will be required to spend more time parsing documents in order to find relevant information.

In an era where virtual data rooms (VDRs) have become an integral part of the dealmaking process, there is even less excuse for sloppy documentation and poor communication. Using a VDR can enable both buyers and sellers to send and store all the relevant documents securely and straightforwardly.

Buyer experience and/or preparedness
Experienced buyers will typically have well-defined deal processes in place (e.g. checklists, an established deal team, documented due diligence protocols) and be able to execute due diligence quickly and effectively while having a clear idea of the level of risk they are comfortable with.

Less-experienced buyers may be less prepared and have a more haphazard approach. They may also be more risk averse, meaning that they may prefer to spend longer trying to identify potential risks.

Buyer and seller dynamics
In such uncertain times, there may be a number of tensions between buyers and sellers. Sellers will prefer to seal a deal quicker, while buyers are increasingly likely to demand more time to uncover and assess risks.

The current prevalence of valuation gaps may also mean that buyers are keen to use due diligence as an opportunity to drive the final price down or to haggle for an altered deal structure such as an earnout.

Too quick? Fast and effective diligence without rushing
While it is in the best interests of both buyers and sellers to not allow the due diligence process to drag on for too long, there are naturally also risks associated with a due diligence process that is rushed or too brief.

Indeed, while many experts emphasise the importance of proceeding both quickly and thoroughly in order to avoid deal fatigue, the Bayes and Intralinks report actually showed that there was a greater correlation between shorter due diligence and a failure to complete than with longer due diligence processes.

Most obviously, rushing through due diligence can mean that buyers fail to discover critical risks and problems, such as legal, financial, tax or operational liabilities, outstanding litigation, non-compliance with regulations or hidden debts. If a deal then goes ahead and the issues are subsequently uncovered, the buyer is faced with the possibility that they have acquired a business that is worth significantly less than they paid or is even potentially inviable.

Rushed due diligence can also lead to overpaying or mispricing the deal due to insufficient work on financial analysis and valuation, increasing the risk of the buyer paying a premium that does not reflect the true value of the target company. The correlation between quick deals and higher premiums was clearly demonstrated in the Bayes and Intralinks study, which showed a 30 per cent average price premium for acquisitions with short due diligence.

There is also significant risk of creating strategic and integration issues by failing to account for cultural alignment during a rushed due diligence process. Simply put, an extremely quick process is much less likely to detect areas where the two businesses are mismatched or incompatible. By the same token, buyers can also miss potential synergies and fail to identify key staff, which could result in retention issues and underperformance post-acquisition.

Proceeding too quickly can also mean that compliance requirements are overlooked, for example employment law, environmental obligations or data protection, which could potentially expose the buyer to regulatory scrutiny, fines or even operational restrictions in the future.

Post-deal issues associated with a rushed due diligence process can also extend to disputes with the seller. With insufficient due diligence, the risk of post-completion warranty and indemnity claims against the seller rises, while there is also an increased likelihood of disputes over liability for pre-acquisition matters.

TechCo Digital Ltd, a Midlands-based software firm, was acquired by larger regional IT services company RapidEdge Solutions. The acquiring team was keen to close the deal quickly and completed financial, operational, and legal due diligence in only three weeks, eager to outpace a competing bidder.

Both sides were thrilled as the deal completed in a little over a month. However, within nine months, RapidEdge discovered major problems. TechCo had understated its customer churn rate and several key contracts had been lost between agreeing the deal and completion.

A significant unpaid VAT liability surfaced during the first annual audit, leading to unexpected costs and reputational damage. Furthermore, cultural misalignment led to nearly half the technical team leaving within six months.

RapidEdge was forced to write down the acquisition, and the expected synergies never materialised, with the company privately acknowledging that it had prioritised speed as a competitive advantage, without fully appreciating what could be missed by neglecting detailed checks.

Ultimately, the failure of the deal highlights how a hurried process can overlook key risks, with due diligence not probing enough to uncover critical financial and operational red flags, that a more exacting process would have struggled to miss, with the acquisition failing both strategically and financially as a result.

Given the uncertainty and risk that have impacted M&A for the past decade or so, it is understandable that buyers may feel a tendency to take longer over their due diligence, while it is also equally understandable that frustrated vendors will want to close sales in a timely manner and have limited patience for protracted due diligence processes.

However, there are very real risks posed by both rushing due diligence or allowing the process to drag out. Ultimately, it is in the best interest of both parties to facilitate due diligence that is both thorough and conducted in a timely manner, as this maximises the chances of a successful outcome for both buyer and sellers.

To that end, there are a number of steps that both parties can take to accommodate this, with collaboration, communication, preparation and a genuine desire to get the deal done absolutely critical to ensuring a smooth due diligence process and, ultimately, a successful deal.

Related: Financial, Tax and Operational Due Diligence

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