M&A Due Diligence Checklist: Including the People Section Most Lists Skip

Financial due diligence comes back clean. Three months after closing, the purchasing lead leaves, two suppliers change their terms, and the new owner learns that the best customer's discount was never in the contract.

An M&A due diligence checklist covers eight areas: financial, legal, tax, commercial, operational, IT, HR and people. Most checklists treat the last one as a few lines about contracts and payroll. In owner-run companies that is where the real risk sits: who holds the customer relationships, the pricing logic and the know-how – and who will leave after the deal.

By Indrek Põldvee, co-founder of Xhive · Reading time ~11 min

What should an M&A due diligence checklist include?

Due diligence is the buyer's structured check that the business is what the seller says it is – and that it will keep working after the deal. A complete checklist answers three questions:

• Are the numbers real? (financial, tax)
• Are there hidden obligations? (legal, regulatory, contracts)
• Will the business keep performing under new ownership? (commercial, operational, IT, people)

The first two are well served by accountants and lawyers. The third is where most acquisitions of small and mid-sized companies run into trouble – and where standard checklists are thinnest.

The core checklist: eight areas at a glance

Use this as the backbone. Each area lists the documents and questions most buyers request. The detail will vary by industry and deal size.

Areas 1–7 are standard. Area 8 is the one most lists either skip or merge into HR. HR due diligence checks whether contracts and payroll are in order. People and knowledge due diligence checks whether the business can operate without the individuals it depends on today. They are different questions.

Why do most due diligence checklists miss the people risk?

Because most checklists are built around documents, and the people risk is precisely the part that is not documented.

The evidence is consistent:

• Diligence teams know they miss it. In a Bain & Company survey of 250 senior managers with M&A responsibility (2004), half said their due diligence had overlooked major problems. Bain's 2023 M&A report ranked people issues among the least accurate areas of due diligence, together with integration road maps and revenue synergies.
• Successful buyers do it early. Bain partners David Harding and Ted Rouse studied 40 acquisitions for Harvard Business Review. In the 15 they classified as successful, nearly 90% of acquirers had identified key employees and targeted them for retention during due diligence or within 30 days of the announcement.
• Departures are predictable – but only if you look. Wharton's Daniel Kim (2024) found that 33% of employees in acquired startups left within a year, against 12% of comparable hires, and that these departures could largely be predicted before the deal from mismatches between the two organisations.
• Small-business buyers feel it most. McKinsey's 2026 report on small-business ownership transfers lists key person risk – heavy reliance on the departing owner or one senior employee – as a central challenge after the deal. Sellers tend to disengage quickly after the sale, and few have documentation to guide new owners.

A buyer quoted in the McKinsey report put it simply: you cannot diligence everything, and after closing you discover things you did not know to ask about, because the owner handled them personally. The people section of the checklist exists to shrink that list.

The people and knowledge section: 25 due diligence questions

Ask these in interviews, not by email. Written answers produce the official version; conversations produce the real one. Cross-check every important answer with at least one other person.

A. Owner dependency

1. Which customers, suppliers or partners deal mainly with the owner?
2. Which decisions currently require the owner's approval?
3. What does the owner do in a typical week that nobody else does?
4. How did the business perform during the owner's longest absence?
5. What would the owner need to teach a successor that is not written down?

B. Customers and revenue

6. For each top-ten customer, who holds the relationship, and does anyone else know their decision-maker?
7. Are there informal agreements – payment terms, discounts, priorities – not in the contract?
8. Which customers would most likely leave if a specific person left?
9. How are prices set for non-standard orders, and who sets them?
10. Which customers have been lost in the last three years, and why?

C. Operations, suppliers and systems

11. Which processes would stop if one person were unavailable for a month?
12. Who knows the history and real terms with each key supplier?
13. Which systems, spreadsheets or integrations can only one person operate or fix?
14. Where do the documented process and the actual practice differ?
15. What are the recurring exceptions, and who handles them?

D. Key people and flight risk

16. Who are the five people the business could least afford to lose – and does their title match their importance?
17. What does each of them value: autonomy, status, money, the owner personally?
18. How will their role, reporting line or autonomy change after the deal?
19. Have any of them been approached by competitors or talked about leaving?
20. What would make them stay for the next two years?

E. Documentation and continuity

21. If we asked "where is this written down?" for each critical task, what would the answer be?
22. Is there any succession or deputy arrangement for key roles?
23. Are licences, certifications or regulatory contacts tied to named individuals?
24. What knowledge left with the last key person who departed?
25. What would the seller want a new owner to know in their first 100 days?

The questions are designed around real situations, not abstract processes. That follows a well-tested principle from expertise research: people describe the official procedure when asked how they work, but reveal the real knowledge – cues, judgement, who to call – when they retell specific events.

Who should you interview, and in what order?

Interview order matters because each conversation sharpens the next.

1. The owner or CEO – to get their map of who matters and why. Treat it as a hypothesis, not a fact.
2. The management team – to test the owner's map and find the first gaps.
3. Specialists below management level – sales, purchasing, operations, finance, IT. This is where you find the people who are not on the org chart but hold the knowledge.
4. Back to the owner – to check the conflicts and gaps you found.

For a company with 20–50 employees, six to ten interviews of 45–60 minutes usually cover the critical ground. The seller will worry about confidentiality; agree in advance how the interviews are framed to employees, and keep individual answers anonymous in the report.

Red flags to watch for

How do findings change the deal?

People and knowledge findings are only useful if they change something. They typically affect five things:

• Price. Strong owner dependency is priced as risk. Advisers commonly cite discounts of 10–25% of enterprise value where the owner is central to sales.
• Structure. An earn-out shifts some of the risk back to the seller. It does not remove the risk; it only changes who carries it.
• Retention. McKinsey's guidance on M&A talent suggests that typically fewer than 2% of staff should receive retention packages. Your interviews tell you who that 2% is – which is often not the same as the senior titles.
• Transition terms. Define the seller's handover in the purchase agreement: duration, scope and what knowledge must be transferred, not just "available for questions".
• Knowledge capture before closing. Use the leverage you have before signing to document the critical knowledge – customer relationships, pricing logic, supplier history – while the seller is still motivated.

When should people due diligence happen?

As early as possible, and before signing. Three reasons:

• Leverage. Before closing, the seller wants the deal to happen and will cooperate. After payment, their attention moves on.
• Pricing. Findings can only change price and structure while they are still being negotiated.
• Day one. If you know who the key people are before closing, you can talk to them in the first days – which Harding and Rouse's research links to successful deals.

A practical sequence: a light owner-dependency check during the first meetings, full people and knowledge interviews in parallel with financial due diligence, and a written knowledge map before signing.

The checklist by deal stage

Special case: first-time buyers and search funds

The people section matters even more when the buyer will run the company personally.

McKinsey's 2026 report describes the market for companies valued between roughly $0.5 million and $25 million as dominated by independent buyers: entrepreneurs, self-funded searchers and career professionals who acquire a company and step into the CEO role. Search funds increasingly target the lower middle market of $2–25 million. These buyers often do not have an integration team, a group of sister companies or an experienced management layer to fall back on.

That changes the risk profile. In a corporate acquisition, a departing sales manager is a problem for the integration team. In a search fund acquisition, the new CEO is learning the business at the same moment the person who knew it best is leaving. The handover period is often only weeks or a few months.

For first-time buyers, three adjustments help:

• Interview more people, earlier. Ten interviews before signing are cheaper than a lost customer in month four.
• Make knowledge transfer a deliverable, not a favour. Write it into the purchase agreement with a clear scope.
• Plan the first 100 days around the key people list. Meet them in week one, before rumours do the work for you.

Questions buyers ask before signing

What is included in an M&A due diligence checklist?

Financial, tax, legal, commercial, operational, IT, HR and people due diligence. The first seven are standard; people and knowledge due diligence – who the business really depends on – is often missing.

What is the difference between HR due diligence and people due diligence?

HR due diligence checks contracts, payroll, benefits and compliance. People due diligence checks whether the business can operate without the individuals it depends on, and who is likely to leave after the deal.

What questions should I ask employees during due diligence?

Ask about real situations: who handles each key customer, how non-standard prices are set, what would stop if someone were absent for a month, and what was lost when the last key person left.

How long does M&A due diligence take for a small company?

For an owner-run company, a full due diligence typically runs for several weeks. People and knowledge interviews can run in parallel with financial work, so they do not need to extend the timeline.

Will interviewing employees alarm them?

It can, which is why the framing matters. Agree with the seller how the interviews are introduced, keep individual answers anonymous, and focus questions on how the work is done rather than on the sale.

The plain conclusion

People and knowledge due diligence will not turn a bad deal into a good one. It will not fix a weak market position or a price that was too high to begin with.

What it does is narrower and still valuable: it shows you, before you sign, who the business really depends on and what would leave with them. That changes the price, the structure, the retention list and the handover terms while you can still negotiate them.

Watch out for documentation theater: a data room full of process descriptions that nobody in the company actually follows. The test is simple. Ask two people how the same task is done and compare the answers.

Start with questions 1 to 5 in your first meeting with the seller. If the answers keep pointing to one person, plan the interviews before you agree on the price.

Related: Key Man Risk (Key Person Risk): Meaning, Assessment and How to Reduce It