Understand the Overall M&A Structure

Most M&A transactions follow five core stages. Understanding the complexity of each phase—and how it affects stakeholders—helps teams manage risk and decision-making more systematically.

Stage 1: Evaluation and Preliminary Review

The target company prepares an Information Memorandum (IM) to attract potential buyers.
This document provides high-level insights into the company or assets while protecting sensitive information. At this stage, parties typically sign a Non-Disclosure Agreement (NDA) to safeguard confidentiality.

Stage 2: Negotiation Phase

Buyers and sellers review key considerations such as employment law, licensing, competition regulations, and financial structure.
Potential buyers may submit a non-binding Letter of Intent (LOI) outlining proposed transaction terms and valuation assumptions.

Stage 3: Due Diligence

Due diligence is the most critical phase of an M&A transaction. Advisors appointed by the buyer conduct a comprehensive review to assess:

• Legal and regulatory compliance

• Financial performance and risks

• Contractual obligations

• Employment and labor practices

• Data privacy and cybersecurity

• Intellectual property and operational risks

The goal goes far beyond document verification. Effective due diligence:

• Supports rational pricing

• Identifies hidden risks and liabilities

• Enables smoother post-merger integration

• Builds trust between buyers and sellers

Many M&A failures stem from insufficient due diligence, leading to cultural clashes, regulatory surprises, or financial misalignment. This makes due diligence a primary risk-management mechanism.

Stage 4: Final Negotiation and Closing

Based on due diligence findings, parties negotiate final terms such as:

• Purchase price adjustments

• Representations and warranties

• Indemnities and liability limits

These terms are formalized in either a Stock Purchase Agreement (SPA) or an Asset Purchase Agreement (APA), depending on transaction structure.

Stage 5: Post-Closing Integration and Execution

SPAs and APAs include post-closing obligations such as asset transfers, regulatory consents, and price adjustments.
After closing, both parties focus on post-merger integration (PMI) to realize planned synergies and operational alignment.

Limitations of Traditional Due Diligence

Traditional due diligence often emphasizes tangible assets and mechanical checks of tax, accounting, and legal documents. However, M&A involves highly complex evaluations across operational, legal, financial, and strategic dimensions.

Qualitative factors—such as historical management practices, ethical issues, or organizational culture—depend heavily on human judgment. As more experts and stakeholders become involved, the risk of errors, inconsistencies, and information asymmetry increases.

Cautions When Using General-Purpose LLMs

Large Language Models (LLMs) are effective for summarization, drafting, and rapid information retrieval. However, M&A due diligence presents challenges that exceed their standalone capabilities:

• Processing large volumes of private, incomplete documents

• Tracking multi-layered contractual relationships

• Performing multi-step causal and legal reasoning

Inaccurate assumptions or hallucinations can distort assessments of financial health, legal exposure, or competitive positioning.

Leveraging Agentic AI Tools Effectively

For M&A due diligence, Multi-Agent AI and Symbolic AI (SAI) are particularly powerful.

Key capabilities include:

• Ontologies and knowledge graphs (OWL/RDF) to explicitly model corporate structures, contracts, and regulations

• Rule-based reasoning engines to verify compliance and detect regulatory conflicts

• Directed Acyclic Graphs (DAGs) to model causal relationships between financial metrics and enable counterfactual analysis

• A hybrid architecture where LLMs handle natural language understanding while symbolic systems perform logical validation

Additionally, Explainable AI (XAI) enables teams to understand how conclusions are reached, assess data quality, and validate outcomes—critical for high-stakes M&A decisions.