What diligence is
Due diligence is the buyer verifying, line by line, that the company it agreed to buy is the company described. Financial diligence reads the books against bank statements and tax returns. Legal diligence reads the contracts, the licenses, the leases and anything bearing the owner's signature. Operational diligence examines how the work is done and by whom. Where a company operates under licenses, particular attention falls on whether the licenses, and the people who hold them, survive the change of ownership.
In principle it is verification, not renegotiation. In practice it is where many deals reprice, and the difference is largely decided by preparation done, or not done, months earlier.
Why deals reprice here
A buyer that finds an undisclosed problem holds two things: the problem, and the new question of what else was not mentioned. The second is what retrades are made of. The defense, covered in the third part of this series, has no substitute: disclose everything discoverable early, when it can be priced calmly and presented with a plan, rather than leaving it to be found late, when it becomes leverage.
The seller's role during diligence
To run the company. Diligence takes weeks, the requests arrive in waves, and the temptation is to spend every evening on the data room while the company drifts. The buyer is watching this quarter's results while it verifies last year's, and revenue that slips during diligence is the one discovery a seller cannot dispute. Having someone else manage the flow of documents is much of the practical value of representation.
The mechanics of closing
The purchase agreement is the real contract, where the outline of the LOI becomes enforceable detail. The seller makes written statements of fact about the company, the representations and warranties, and stands behind them after closing. A closing statement then accounts for every dollar: price, escrow, working capital adjustment, debt repaid at closing and fees. It is worth reading against the LOI that was signed. Then the funds arrive, and the company changes hands at an agreed time.
Informing the team
The general practice is that employees hear of the sale from the owner, after certainty, with the buyer's plan for them ready to state, usually at or just before closing. The exception is the few key people whose staying matters enough to negotiate retention earlier, under confidentiality. What the rest of the team is owed is not earlier information but a settled answer to the question they will ask, which is what happens to them.
Where this fits: the last step of the process, and the end of this series. The whole sequence is set out on the sell-side page, and the written assessment is where it begins.