What to Include in Agency Acquisition Due Diligence

Diligence isn't one long checklist you run start to finish. It's risk-sequenced, deal-killers first, so you're not spending weeks on cleanup items before you've confirmed the deal can happen.

Preliminary diligence, before the LOI

The goal is narrow: confirm the financials meet the baseline and that buyer and seller can agree on a price. Request a lean preliminary list, enough to calculate a real EBITDA number and draft a letter of intent. Check these green-light signals before you go further: client concentration under 30% for any single client, revenue that isn't declining year over year, no undisclosed litigation or liens, key client contracts that appear assignable, and no material gap between stated financials and tax returns. If several of these are already flashing red at this stage, that's information, not something to push past.

Confirmatory diligence, after the LOI, in three tiers

Tier one, high risk: confirm or kill. Financial integrity (statements, several years of tax returns, bank reconciliation, EBITDA normalization), legal and regulatory review, ownership and cap table validation, and culture and key-person risk. Deal-killers here are fraud or material misrepresentation, unresolvable tax or legal issues, irrecoverable client or founder departures, and unbridgeable culture misalignment. Don't move forward until Tier 1 is clean.

Tier two, mid-risk. Client and revenue analysis, including renewal terms, churn, and top-ten client dependency. People and HR: compensation, tenure, non-competes, contractor classification. Operations and delivery: documented processes, tooling, scalability. These are fix, hold back, or discount items, not automatic deal-killers, as long as every issue has a clear remediation path.

Tier three, low risk. Data room cleanup, confirmatory background and reference checks, IP and trademark assignments, and post-close readiness planning.

Credit: Peter Lang, Digital Agency Business

Why the sequencing matters

If a Tier 1 finding can't be resolved, everything after it is wasted effort. Running a full exhaustive diligence process before you've confirmed there's no deal-killer burns time and goodwill on a deal that was never going to close.

Common mistakes

Founders request the full exhaustive materials list before the LOI is even signed. That reads as extractive to a seller and slows the relationship before you've confirmed there's a deal to be had. Save the exhaustive list for after the LOI.

Recommended next steps

Build your own deal-killer watch list before your next diligence process starts: client concentration above 30%, the owner personally managing every key relationship, undisclosed litigation, non-assignment clauses blocking contract transfer, and a gap between reported financials and tax returns.

Frequently Asked Questions

What's the difference between preliminary and confirmatory diligence?

Preliminary diligence runs before an LOI and answers a narrow question: does the deal clear the baseline on price and financials? Confirmatory diligence runs after the LOI, once you have exclusivity, and goes much deeper across all three risk tiers.

What are the most common deal-killers?

Fraud or material misrepresentation, unresolvable tax or legal matters, client or founder relationships that can't survive the transition, and a culture misalignment no integration plan can fix.

Should I request everything up front to save time?

No. A lean preliminary list, then the full exhaustive list only after the LOI, keeps the process paced appropriately and avoids reading as extractive before trust is established.

How do I evaluate culture during diligence, since it's not in the financials?

Treat every interaction with the seller and their team as a diligence signal. Sophistication, responsiveness, and willingness to engage collaboratively all tell you something real about what you're buying, well beyond what shows up in a document request.