Top 5 Red Flags Buyers Look for During M&A Due Diligence

Don't Let Diligence Kill Your Sale

You found a buyer, agreed on an asking price, and signed an L.O.I. (Letter of Intent). But the hardest part is yet to come: **Due Diligence**.

Over 40% of agreed-upon acquisitions fall through during the diligence audit phase. In this article, our platform vetted transaction compliance officers outline the top 5 red flags that ruin deals, and how you can fix them.

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1. High Customer Concentration Risk

If your startup makes $50,000/month, but one enterprise client contributes $35,000 of that revenue, you have a major customer concentration issue.

• **The Buyer's Panic:** If that single client cancels tomorrow, 70% of the acquired business's value vanishes.
• **The Solution:** Try to diversify your account profiles. No single client should represent more than **15%** of your total ARR.

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2. Messy or Unvetted Code Repositories

Institutional buyers will hire developer audits to scan your GitHub repository for open-source license violations (like copy-pasting GPL code into proprietary software) or hardcoded secrets.

• **The Solution:** Run an automated security linter before listing. Ensure all packages are up-to-date and dependencies are well-documented.

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3. High Churn and "Spike" Revenues

Buyers will pull cohort retention logs from Stripe or Razorpay. If your revenue grew due to a massive, non-recurring lifetime deal (LTD) promo, but your monthly churn is 8%, the growth is artificial.