Management Due Diligence Checklist Template

Start about six weeks before the investment decision or final offer. The first task names the four people and asks two questions: an acquisition or a minority investment, and whether a financial regulator authorises the target. Every due date counts from the decision date, in working days.

• Set up the management review — the target company, the deal, the date of the investment decision or final offer (which every due date counts from), whether this is an acquisition or a minority investment, whether a financial regulator authorises the target, and the four people; later tasks are assigned from these fields
• Agree the questions the management review must answer — what the deal case assumes about the leadership team, who is critical to the plan, what the team lacks, and what it will cost to keep and strengthen it; and who on the deal team or which adviser answers each question
• Agree who is in scope — the chief executive, the finance director and the other executives, the people below them the plan depends on, the founders, and any non-executive directors; record each person’s role and whether founders will stay or leave after the deal
• Agree the confidentiality, consent and data protection rules — who knows about the review, how the target’s leaders are approached and by whom, what each person will be asked to consent to, who sees the findings, and how long personal data from the review is kept
• Request the management information from the target — the organisation chart, service agreements and offer letters for the people in scope, incentive and equity documents, board and committee minutes, the last three years’ plans and budgets, and senior leavers with their reasons

Know the structure before you meet the people. The deal type adds a task to plan the structure after completion when the buyer will control the company.

• Review the organisation chart and reporting lines — who reports to whom, spans of control, vacant, interim and acting roles, and anyone who holds two jobs
• Identify the key roles the plan depends on — the roles whose loss or failure would hurt the plan most, who holds each one, and why it matters to the deal case
• Check how decisions are made and how the board works — who decides what, delegated authorities, the board and its committees, how often they meet, what papers they see, and whether the board challenges the executives
• Review leadership turnover and tenure — departures from senior roles in the last three years and the reasons given, and how long each current leader has been in role
• Map the leadership structure the deal needs after completion — who leads each part of the business after completion, which roles change, combine or are new, and where the buyer’s own people fit

Use the same core questions for every leader so the answers can be compared, and write the notes up the same day.

• Prepare the interview guide — the same core questions for every leader, with questions for each role drawn from the plan, past results and the information received
• Hold a structured interview with each leader — their role and results, their view of the plan and its risks, their team, and what they would need to deliver; two interviewers where you can, with notes written up the same day
• Hear the leadership team present the business plan — how they explain the plan, the numbers and the risks, whether they know their own figures and drivers, who answers which questions, and how they respond to challenge
• Ask each leader about their plans after the deal — whether they intend to stay, the role they want, and what would make them leave; record it as an indication, not a commitment

Test what the leaders say against what the business delivered under them.

• Compare past plans and budgets with what was delivered — the last three years’ budgets and plans against actual results, by leader where you can, with the reasons the leaders give for each gap
• Review how forecasts were revised and how bad news was reported — how often forecasts moved during the year, how early misses were reported to the board and investors, and who reported them
• Check each leader’s career history and the results they claim — roles, employers and dates before the target, checked against CVs and public records, and the specific results each leader claims, with dates, to test in references

Run only the checks the law allows in each country, with the person’s agreement where it is needed. Take legal advice. A target authorised by a financial regulator adds the regulatory checks. If a check turns up a red flag, answer the red flag question in Phase 6 straight away.

• Plan the checks for each person within each country’s rules — which checks for which person, the countries each has lived and worked in, the legal basis for each check, the consent and notices needed, and who runs them
• Get written consent and give the notices each check needs — each person’s agreement to the checks and to references, the privacy information they must be given, and any form a country’s law requires before a check is run
• Check directorships, disqualifications and insolvency records — the companies each leader has directed and how they ended, the register of disqualified directors, and the insolvency registers, in the UK and the countries they have worked in
• Check each leader on the FCA Financial Services Register — each leader’s current roles, whether they are approved to hold a Senior Management Function, and any disciplinary or regulatory action on their record
• Run criminal record checks only where the law allows — in England and Wales, ask each leader to apply for a basic DBS check on their own record and share it; more detailed checks only for roles that qualify; other countries’ checks only under their rules
• Check sanctions lists, regulatory actions, litigation and media — the sanctions lists that apply to the deal, enforcement notices from regulators, court records, and adverse news for each person in scope
• Review the target’s fit and proper records and Statements of Responsibilities — the target’s fitness and propriety assessments of its Senior Managers and certified staff, each Senior Manager’s Statement of Responsibilities, and the regulatory references taken when they were appointed
• Check the regulator’s approval and fit and proper rules for each leader — which roles need the regulator’s approval, whether each leader holds it, the regulator’s fit and proper test, and any action on their record; take local advice
• Verify qualifications and professional memberships — the degrees, professional qualifications, memberships and licences each leader relies on for their role, checked with the awarding body
• Plan FCA or PRA approval for any new Senior Manager — anyone the deal will put into a Senior Management Function needs approval before they start; build the application time into the 100-day people plan

Ask every referee the same questions, and test the claims from Phase 4. The last task asks whether a red flag has been found; Yes adds the escalation tasks.

• Take references from the people each leader named — former managers, peers, board members and investors; the same questions for each, notes written up the same day
• Take independent references — people who worked with the leader but were not named by them, within the consent agreed and without revealing the deal
• Ask the target’s board and investors about each leader — what the chair, non-executive directors and current investors say about each leader’s performance, judgement and openness with the board
• Record what the checks and references found — a summary for each person of the background checks, regulatory checks and references, with anything that contradicts what they told you; then answer whether a red flag has been found
• Escalate the red flag and run the extra checks it calls for — tell the deal lead and the decision maker, agree what more to check and who checks it, and decide whether the deal timetable needs to move
• Put the concern to the person and record the outcome — give the person a fair chance to explain, record their answer, and decide whether the concern stands

What keeps each leader in the business after the deal, and what the deal itself changes. The founders answer and the deal type add tasks here.

• Review service agreements and notice periods — each leader’s contract: notice, garden leave, change of control clauses, termination payments, and anything the deal triggers
• Review restrictive covenants — non-compete, non-solicitation and non-dealing clauses: what they cover, for how long, and whether advisers think they would hold where the person works
• Review equity, options and incentive plans — who holds what, vesting, good and bad leaver terms, what the deal triggers, and what each leader receives at completion
• Model what each key leader gains or loses from the deal — what each key leader receives at completion against what they could earn by staying, and whether that leaves a reason to stay
• Agree the founders’ roles, reporting lines and equity after the deal — the role each staying founder will have, who they report to, the equity they keep or roll over, and the decisions they will no longer take alone
• Plan each leaving founder’s handover and transition period — how long each leaving founder stays after completion, the knowledge, customers and relationships they hand over and to whom, and the covenants that apply after they leave
• Agree the governance rights that cover leadership risk — a board seat or observer, information rights, consent rights over hiring, removing and paying senior leaders, and leaver terms in the shareholders’ agreement
• Agree the retention and incentive proposal — for each key leader: new service agreements, retention payments, equity rollover or a new incentive plan, and the leaver terms; drafted for the negotiation

Bring the interviews, track record, references and contracts together: who matters most, how likely they are to go, how the team works, and what it lacks.

• Assess how the leadership team works together — how they make decisions, handle disagreement and share information, from the interviews, the presentation and the board
• Review culture signals and compare them with your own — employee survey results, staff turnover, themes from exit interviews and grievances, set against how the buyer or investor works: pace, decision making and reward
• Rate key-person risk for each key role — the impact if each key leader left and how likely it is in the first year after the deal, from the interviews, references, contracts and incentives
• Check succession and interim cover for each key role — who could step in now, who could be ready within a year, who covers in an emergency, and how long an outside hire would take
• Identify the gaps in the leadership team — roles that are missing, skills the plan needs that nobody has, leaders to replace, and the cost and timing of filling each gap

The decision maker accepts the findings with a decision before the final offer or investment decision. Nothing after that task can be completed until it is done. The decision and the deal type add the tasks that follow.

• Draft the 100-day people plan — retention agreements signed, roles and reporting lines confirmed, hires started, approvals applied for, governance changes made, and support for each leader, with an owner and a date for each
• Write the management due diligence findings report — for each leader and for the team: strengths, concerns, red flags, key-person risk, retention terms and gaps, with a recommendation to proceed, proceed with conditions or stop
• Present the findings to the deal lead or investment committee — the report, the 100-day people plan and the retention proposal, with the questions asked and any further work requested
• Decision maker accepts the management findings — the decision maker records proceed, proceed with conditions, or stop before the final offer or investment decision; nothing after this task can be completed until it is done
• Put the conditions into the deal documents — each condition as a term of the offer, the investment agreement or the shareholders’ agreement, or as a step to complete before completion, with an owner
• Record the decision to stop and close the review — tell the deal team and the advisers, record the reasons, return or delete personal data under the agreed rules, and mark the tasks that no longer apply as not applicable
• Hand the 100-day people plan to the integration lead — the plan, the findings each workstream needs, the retention terms agreed, and the restricted parts of the report that stay with the deal team
• Agree the 100-day people plan with the leadership team and the board — the actions the leaders own, the hires and support you will provide, and how progress is reported to the board