What Private Equity Buyers Look For Before Signing the Deal
In a wealth management M&A deal—especially one involving a private equity–backed acquirer—the due diligence due diligence is where the real scrutiny begins. Before any transaction is finalized, the buyer will conduct a deep dive into your firm’s operations, financials, compliance, and people to ensure the business they’re acquiring aligns with their growth strategy and risk appetite.
For sellers, understanding the due diligence process ahead of time is critical. It not only impacts the final purchase price, but it can also determine deal terms, earn-out structures, and whether a buyer moves forward at all.
Why Due Diligence Matters
Wealth management firms are not valued purely on financials they are valued on trust, people, and recurring client relationships. For private equity–backed buyers, due diligence helps answer one core question:
Is this firm’s revenue durable, transferable, and scalable within our platform?
To answer that, buyers will evaluate everything from advisor retention risk to compliance history and billing consistency. A clean diligence process signals a well-run business—and increases confidence in the investment.
Key Areas of Private Equity Due Diligence
Now that we’ve covered the phases, let’s break down what due diligence in private equity looks like in specific areas. This isn’t a one-size-fits-all process, but there are core categories every firm focuses on.
Financial Due Diligence
The first—and arguably most critical—component of due diligence is financial. After all, if the numbers don’t add up, nothing else matters. Financial due diligence involves reviewing income statements, cash flow, and balance sheets. The goal is to confirm the company’s financial health and understand its future earnings potential.
One of the key tools here is the Quality of Earnings report. This in-depth analysis looks beyond basic financial statements to assess how sustainable the company’s earnings are. It’s about making sure the revenue the company is reporting isn’t inflated by one-off transactions or other factors that won’t continue post-acquisition.
Legal Due Diligence
Legal due diligence is about making sure there are no hidden legal liabilities or compliance issues. The focus here is on contracts, intellectual property, pending lawsuits, and regulatory compliance. A company with a clean legal slate is a safer bet, but this step also uncovers things like potential disputes with suppliers or customers.
For private equity firms, missing a legal red flag can be costly. That’s why legal due diligence is so thorough—it’s about protecting the firm from unexpected headaches after the deal is done.
Commercial Due Diligence
What is due diligence in mergers and acquisitions without a look at the company’s market position? Commercial due diligence involves assessing the target company’s place in its industry and its potential for growth.
It’s not just about where the company is today but where it could be in the future. The firm will look at the competitive landscape, customer base, and industry trends to get a full picture of the target’s commercial viability.
Operational Due Diligence
Operational due diligence digs into how the target company runs day to day. This includes everything from supply chains to human resources. The idea is to identify areas where the firm could improve efficiency or streamline operations after the acquisition.
For example, Who are your clients? Buyers examine average account size, age demographics, client tenure, and revenue concentration. Heavy reliance on a few large clients—or a rapidly aging book—can be a red flag.
IT and Technological Due Diligence
In today’s digital world, technology is a cornerstone of business operations. That’s why IT due diligence is critical in assessing a company’s tech infrastructure.
Buyers assess your CRM, portfolio management software, financial planning tools, and cybersecurity protocols. Firms using outdated or non-scalable technology may face integration hurdles or post-close investment requirements.
Why Due Diligence Matters
So, what is due diligence in M&A, and why does it play such a vital role? In mergers and acquisitions, due diligence helps protect buyers from unexpected risks.
Whether it’s legal liabilities, financial instability, or operational inefficiencies, a thorough due diligence process shines a light on potential problems before they become costly mistakes.
Beyond the numbers, buyers want to understand your strategic vision. What are your growth drivers? How do you attract and retain clients? How well does your service model align with theirs? If the strategic fit is unclear, the deal may stall.
What sellers should expect
For RIAs preparing to sell, the due diligence phase can feel intrusive—but it’s a standard part of the process. Being prepared, transparent, and organized goes a long way in building credibility and protecting value.
Sellers should expect to:
- Provide detailed financial and operational data
- Respond to structured diligence checklists
- Participate in meetings with legal, compliance, and technology advisors
- Discuss key staff roles, responsibilities, and compensation
- Disclose any outstanding legal, regulatory, or client issues
Partner with InCap Group Today
At InCap Group, we help wealth management firms navigate every stage of the M&A process—from positioning and negotiation to diligence and close. Our team works alongside sellers to prepare materials, anticipate buyer questions, and defend value during diligence.
If you’re considering a sale, preparation is everything. We help you put your best foot forward—and ensure your firm is ready for the level of scrutiny that comes with a private equity–backed transaction.
If you are ready to take the next step, we invite you to contact us today to learn how our expertise can be a resource for you.