Due diligence

How it runs

It starts with the data room: a structured set of everything the seller provides. Reviewers then work along their disciplines, usually legal, technical, tax and financial, and raise questions whose answering is itself part of the process: an item that draws no answer counts as open.

The first output is often a red flag report naming only the items that endanger the acquisition or move the price. It arrives early and deliberately incomplete, because its job is to enable a decision before the full review is paid for.

What becomes of a finding

Every confirmed finding takes one of four routes. It is cured before completion, making it a condition precedent. It is covered by the seller, making it an indemnity. It is priced, making it a discount. Or it stays open and is backed by a holdback released only once it resolves.

That allocation is the real negotiation. Two buyers working from the same list of findings can end up with very different agreements depending on which route each item takes, which is why the length of a list says little about the outcome.

What makes a review expensive

Not the number of documents but their order. A data room holding contracts that are incomplete, unnamed or still in draft lengthens every loop: the reviewer asks, the seller searches, the clock runs. Cost arises on both sides, but delay hits the seller, whose window of permits, grid commitments and quotes is finite.

The second cost driver is answering late the questions the seller could have asked itself. Reviewing your own file before approaching a buyer is the cheapest part of the entire exercise.

A seller should anticipate the review rather than experience it. In practice: read the file once from the other side, note every gap, and decide for each whether it gets closed or explained. What gets explained belongs in the data room, not in a conversation.

For valuation, the findings that actually move money are usually few and always the same: unsecured site control, a grid connection subject to reservation, a permit with a running deadline, a construction contract with no price commitment. Everything else is detail work.

On the buy side the discipline runs the other way: scope follows volume and risk, not the availability of documents. A full review on a small rooftop project costs more than the error it is meant to prevent.