THINKSPIREFive red flags we always check in mid-market M&A due diligence
After enough deals, patterns repeat. These five issues surface in a majority of mid-market targets, and every one is fixable if found early.
1. ESOP paper that doesn't match the cap table
Grants approved by no one, exercise prices amended over email, pools expanded without shareholder approval. The cap table says one thing; the paper trail says another. In a sale, that gap becomes a price adjustment or an indemnity you'll live with for years.
2. Related-party transactions priced by memory
Rent to a founder's family firm, services from a sibling's company. The issue isn't the relationship. It's the absence of benchmarking and approvals. Buyers discount what they can't verify.
3. IP assigned by assumption
Early code written by freelancers with no assignment deed; a brand registered in a founder's personal name. The company you're buying may not own the thing you're buying it for.
4. GST and books telling different stories
Turnover per GST returns reconciling to the financials is the fastest honesty check in Indian diligence. Persistent unexplained gaps are rarely innocent and never cheap.
5. Change-of-control clauses nobody re-read
The target's biggest customer contract, its bank facilities, its office lease: any of them may require consent on a change of control. Finding this at signing costs leverage; finding it after closing costs money.
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