Insight
M&A due diligence: buy-side vs. sell-side review in Washington
M&A due diligence is the same investigation run from two chairs. The buyer looks to find and price the risk; the seller looks to find and fix it before the buyer's lawyer does.
Published
June 12, 2026
Updated
June 12, 2026
Due diligence is where a deal’s real risks surface, or where they hide until the year after closing. Everyone in an acquisition agrees it matters. What gets missed is that “diligence” is not one thing. Who runs it, when, and why changes what it is looking for and what it is built to protect. A buyer’s review and a seller’s review of the same company have opposite goals, and a third review happens right before the deal closes.
The legal side of diligence is the investigation behind the numbers: the contracts and their change-of-control terms, the cap table, the employment files, the litigation history, the tax filings, and the liabilities that never made it into the data room. What that review finds, or fails to find, sets the price, writes the indemnity, and decides who absorbs the surprise that shows up after closing.
Buy-side vs. sell-side diligence
The two reviews share a checklist and almost nothing else.
Buy-side diligence is the buyer’s review of the target, run by the buyer’s counsel after the letter of intent during the exclusivity window. Its job is to find the risk and price it. Findings become leverage: a problem that surfaces here moves the purchase price, gets covered by a specific indemnity, or becomes a condition the seller has to fix before closing. The buyer is reading for what the seller did not volunteer, the anti-assignment clause in the biggest customer contract, the option pool that was never properly approved, the contractor who actually owns the code.
Sell-side diligence, also called vendor due diligence, is the same review run in reverse, by the seller’s counsel, before the company goes to market. Its job is to find and fix the seller’s own problems before a buyer’s lawyer does. The logic is about leverage: a defect the seller discovers and cures on its own timeline is a non-event, while the same defect discovered by the buyer mid-deal, after price is set and momentum is built, becomes a re-trade. A clean diligence binder built before the letter of intent supports the asking price and keeps the seller from negotiating against its own surprises.
What diligence is actually hunting for
The reason diligence matters is that some liabilities follow the business no matter how the deal is papered, and most of them never appear in the financial statements. The legal review exists to find them before they become the buyer’s problem.
Tax is the clearest. Under RCW 82.32.140, a buyer who acquires a Washington business can be held liable for the seller’s unpaid Business and Occupation and sales taxes unless the tax-clearance procedure is followed before closing. Intellectual property is the quiet one: absent a written work-made-for-hire or assignment agreement under 17 U.S.C. section 101, the contractor who wrote the code, not the company buying it, may own the copyright. Employment exposure hides in the same place; misclassified workers and unpaid wages carry double-damages risk under RCW 49.52. And environmental contamination can attach to a new owner under federal Superfund law (CERCLA, 42 U.S.C. section 9601) for damage done decades before the sale. None of these show up in a profit-and-loss statement. All of them can land on the buyer.
Confirmatory diligence at the end
A third review runs after the deal is signed but before it closes. Confirmatory diligence is narrower, a bring-down that checks nothing material changed between signing and closing, that the seller’s representations still hold, and that the consents promised at signing actually came in. It matters most when weeks or months pass between the two events, which is normal when a deal needs a regulatory clearance or a financing to fund.
Here is how the three reviews compare.
The findings that move a deal
Diligence is not a report that gets filed; it is an input to the terms. Findings get triaged into four buckets. A deal-killer ends the transaction. A price adjuster moves the number before signing. An indemnity item gets covered by the reps and warranties and backed by escrow. A closing condition is something the seller has to cure before the money moves. A misclassified workforce might be a price cut plus a specific indemnity. An unrecorded patent assignment might be a condition the seller fixes before closing. A customer that is forty percent of revenue on a thirty-day termination right might turn a fixed price into an earn-out.
Those findings then shape the disclosure schedules, the exhibits that qualify the seller’s representations and define exactly what the buyer is accepting and what it is not. A representation that the company owns all its intellectual property, qualified by a schedule listing the one contractor agreement still outstanding, is a different allocation of risk than the same representation with no schedule at all.
Why a seller runs diligence on itself
Spending money to investigate your own company before you sell it sounds backward until you have watched a deal re-trade. The buyer’s counsel will find the problems. The only question is whether they surface on the seller’s timeline, when there is room to fix or explain them, or on the buyer’s, after the price is set and the leverage has shifted. Sell-side diligence buys the seller the first move. It also speeds the buyer’s review, because a well-organized data room with the known issues already addressed is faster to clear, and a faster close is its own protection against the things that go wrong while a deal sits open.
How to choose what you need
The review follows the side you are on and where the deal sits.
- Buying a company: a full buy-side review is not optional. The cost of the review is small against the liabilities it is built to catch, and what it finds pays for itself in the price and the indemnity.
- Selling into a competitive process or an auction: sell-side diligence lets you control the narrative, support the price, and avoid the mid-deal surprise that hands leverage to the buyer.
- Facing a gap between signing and closing: budget for confirmatory diligence, because the reps you signed have to still be true on the day the money moves.
Whichever review it is, the discipline is the same: scope it to what matters, find the real issues early, and turn what you find into terms the client can live with after closing.
Frequently asked questions
What is M&A due diligence?
M&A due diligence is the investigation a buyer or seller runs on a target company before a deal closes. The legal side covers corporate records and the cap table, material contracts, employment and benefits, intellectual property, tax, litigation, real estate, and environmental exposure. What it finds shapes the price, the indemnity, and the disclosure schedules that define what each side is accepting.
What is the difference between buy-side and sell-side due diligence?
Buy-side diligence is the buyer’s review of the target, run after the letter of intent to find and price the risk. Sell-side, or vendor, diligence is the seller’s review of its own company, run before going to market to find and fix problems before a buyer’s counsel does. Same checklist, opposite goals.
What is sell-side (vendor) due diligence?
It is diligence a seller commissions on its own business before a sale, so it can address problems on its own timeline rather than have them surface mid-deal. It is common in auctions and competitive sales, where it produces a clean diligence binder multiple buyers can review, and it helps the seller hold its price.
What liabilities can a buyer inherit if diligence misses them?
Several that never appear in the financials: unpaid state business taxes as a successor under RCW 82.32.140, intellectual property the company does not actually own because a contractor never assigned it, employment and wage exposure including double damages under RCW 49.52, and environmental cleanup liability under CERCLA. Diligence exists to find these before they transfer.
How long does M&A due diligence take?
Most reviews of a closely held company run two to six weeks from data-room access, set by the diligence window in the letter of intent. The constraint is usually how fast the seller produces documents, not the review itself. A disorganized data room stretches the timeline more than a complex business does.
Diligence done early is leverage; diligence done late is damage control. Our due diligence attorneys in Bellevue and Seattle run buy-side review and sell-side preparation, and draft the terms the findings turn into. Talk to us when the letter of intent is signed, while there is still room to act on what the review finds.
