M&A Due Diligence
“Due diligence is where you find out whether you’re buying what you think you’re buying. I’ve seen deals fall apart — and deals get renegotiated significantly — because of what a thorough diligence process uncovered. That’s not a failure. That’s the process working.”
— John Montague
Due diligence is the investigative backbone of every M&A transaction. It’s the process through which a buyer examines the target company’s legal, financial, operational, and regulatory position before committing to a purchase. John Montague has led due diligence efforts on technology company acquisitions for over 15 years, drawing on his dual training in law (J.D., University of Florida Fredric G. Levin College of Law) and accounting (Stetson University) to evaluate targets with both legal precision and financial rigor. This combination is rare among M&A attorneys, and it allows John to identify risks that a purely legal review would miss.
During his time as an associate at Locke Lord LLP (now Troutman Pepper Locke), an AM Law 200 firm, John Montague participated in due diligence for venture capital investments, private equity acquisitions, and strategic M&A transactions spanning a wide range of industries. That experience — combined with his subsequent years of representing buyers, sellers, and investors in his own practice — has given him a keen sense for where problems hide in a target company’s records and operations.
From his offices in Fernandina Beach and Coral Gables (Miami), Florida, John manages due diligence processes for transactions of all sizes, with particular depth in technology, SaaS, and IP-intensive businesses.
What I Handle
Corporate and Organizational Diligence. I review the target’s formation documents, bylaws or operating agreements, board and stockholder minutes, capitalization records, and equity incentive plans. For venture-backed companies, this includes analyzing prior financing documents — stock purchase agreements, investors’ rights agreements, voting agreements, and rights of first refusal — to identify any consent requirements, drag-along provisions, or other deal-affecting terms. A surprising number of M&A transactions hit unexpected delays because of overlooked provisions in prior financing documents.
Intellectual Property and Technology Diligence. For technology acquisitions, IP diligence is often the most critical workstream. I evaluate patent portfolios, trademark and copyright registrations, trade secret protections, and the chain of title for all key IP assets. This includes reviewing invention assignment agreements for founders, employees, and contractors; analyzing open source software usage and license compliance; and assessing the strength and scope of the target’s IP position relative to its competitors. I also examine technology licenses, development agreements, and any pending or threatened IP litigation.
Material Contract Review. I conduct a comprehensive review of the target’s material contracts — customer agreements, vendor contracts, partnership arrangements, licensing deals, and real property leases. The focus is on identifying change-of-control provisions, assignment restrictions, termination rights, exclusivity obligations, most-favored-nation clauses, and any other terms that could affect the buyer’s ability to operate the business post-closing or that could create unexpected liabilities.
Employment and Benefits Diligence. I review the target’s employment agreements, offer letters, independent contractor arrangements, non-compete and non-solicitation agreements, and equity compensation plans. Key issues include identifying key-person risks, evaluating the enforceability of restrictive covenants, assessing potential liability under employment laws (including the Fair Labor Standards Act, Title VII, and state-specific employment regulations), and understanding the impact of the transaction on equity vesting schedules and change-of-control provisions.
Regulatory and Compliance Diligence. Depending on the target’s industry, regulatory diligence may encompass data privacy compliance (CCPA, GDPR, state privacy laws), healthcare regulations (HIPAA, Stark Law), financial services regulations, export controls (EAR, ITAR), and environmental compliance. I identify regulatory risks and assess the cost and feasibility of remediation where compliance gaps exist.
Why Due Diligence Matters — The Legal and Practical Framework
Due diligence serves multiple legal and strategic functions. First, it informs valuation. Findings during diligence directly affect purchase price negotiations, purchase price adjustments, and the allocation of risk through indemnification provisions in the purchase agreement. Second, it shapes the representations and warranties that the seller will make — and the disclosure schedules that qualify those representations. A thorough diligence process produces better-targeted representations and more meaningful disclosure schedules.
Third, due diligence protects the buyer against undisclosed liabilities. Under the common law doctrine of caveat emptor, buyers generally bear the risk of defects they could have discovered through reasonable investigation. This makes the scope and rigor of the diligence process directly relevant to the buyer’s post-closing legal rights. Courts have consistently held that buyers who fail to conduct adequate diligence may be barred from asserting indemnification claims for losses they could have discovered before closing.
For transactions involving technology companies, the American Bar Association’s Model Asset Purchase Agreement and Model Stock Purchase Agreement provide useful frameworks for structuring diligence requests, though each deal requires customization. The ABA’s Private Target M&A Deal Points Studies — which survey actual deal terms from hundreds of transactions — provide valuable benchmarking data for diligence scope, representation and warranty survival periods, and indemnification structures that John Montague references when advising clients on market-standard practices.
John’s Tip
John’s Tip: Pay special attention to what’s not in the data room. The absence of certain documents — invention assignment agreements, board minutes approving key transactions, evidence of regulatory compliance — can be more telling than the documents that are provided. I always start my diligence review with a gap analysis, comparing what we’ve requested against what we’ve received. The gaps often point directly to the areas of highest risk.
Frequently Asked Questions
How long does the due diligence process typically take?
For a technology company acquisition, legal due diligence typically takes three to six weeks, depending on the size and complexity of the target. The timeline depends on the target’s readiness — companies with well-organized corporate records, clean IP portfolios, and accessible contract files move through diligence much faster. John Montague emphasizes pre-diligence preparation with sell-side clients to accelerate this process and reduce friction.
What are the most common red flags found during due diligence?
Common issues include incomplete IP assignment chains (particularly for early-stage technology companies that used contractors without proper agreements), undisclosed related-party transactions, change-of-control provisions in key customer contracts, outstanding tax obligations, misclassification of employees as independent contractors, and inadequate data privacy compliance. Any one of these can affect deal valuation or structure.
Who pays for due diligence?
Each party typically bears its own costs. The buyer pays for its own legal, financial, and technical advisors who conduct the investigation. The seller bears the cost of responding to diligence requests, organizing the data room, and engaging its own advisors. In some transactions, the letter of intent includes an expense reimbursement provision requiring the seller to reimburse a portion of the buyer’s diligence costs if the deal fails to close for certain specified reasons.
Can due diligence findings be used to renegotiate the purchase price?
Yes, and this happens regularly. If diligence reveals previously undisclosed liabilities, IP defects, customer concentration risks, regulatory compliance gaps, or other material issues, the buyer may seek a price reduction, additional indemnification protections, escrow holdbacks, or specific covenants requiring the seller to remediate identified issues before or after closing. John Montague, Esq. advises both buyers and sellers on how diligence findings should be reflected in the deal terms.
About John Montague, Esq.
John Montague has conducted and managed due diligence on M&A transactions across the technology sector for over 15 years. His unique combination of a law degree from the University of Florida and an accounting degree from Stetson University gives him the ability to evaluate targets from both legal and financial perspectives simultaneously. A former associate at Locke Lord LLP (now Troutman Pepper Locke), John now advises buyers, sellers, and investors from his offices in Fernandina Beach and Coral Gables (Miami), Florida.