Draft Due Diligence Summary

Skill: Draft Due Diligence Summary Memo

1. Subject-matter triage

• Treat this as an investment-committee summary, not a workstream dump.
• Pull the transaction basics to the front: parties, deal form, financing posture if given, valuation framing, and the recommended posture on signing/closing.
• If the source set contains multiple diligence reports, management materials, and draft deal documents, synthesize them into one integrated view and avoid repeating the same issue in multiple places.
• If only one category of issue is present, say so explicitly; otherwise sort issues into all applicable severity tiers before analysis.

2. Failure modes the skill is correcting

• Presenting findings by diligence workstream instead of by practical importance, which hides what matters most to the investment committee.
• Stopping at issue description instead of tying each issue to scale, document interaction, and transaction consequence.
• Stating a financial adjustment without translating it into pricing or enterprise-value impact.
• Treating insured and uninsured risks alike, or failing to flag exclusions that leave the buyer exposed.
• Describing related-party fees, environmental exposures, or pre-closing liabilities without converting them into deal-protection asks.
• Writing a memo that diagnoses problems but does not end with concrete actions, owners, and timing.

3. Legal frameworks / domain conventions that apply

• IC-ready due diligence summary memos typically lead with transaction overview and recommendation, then present findings by severity, not by source document.
• For any legal or contractual proposition, anchor the statement in the governing source or recognized authority rather than leaving it implicit.
• In a stock acquisition, pre-closing liabilities generally remain economically important because they transfer with the business; diligence must therefore test indemnity scope, insurance exclusions, and any uncapped or weakly capped exposures.
• EBITDA normalization should distinguish true add-backs from ongoing costs and replacement costs, especially for affiliate services, consulting, management, or similar related-party arrangements.
• If diligence identifies government-sponsored employment incentives, tax credits, or similar claims, assess substantiation quality, audit sensitivity, and whether the relevant insurance program excludes that exposure.
• Environmental risks should be compared against any contractual indemnity cap or comparable protection to test whether the available backstop is commensurate with the exposure.
• Legal conclusions should be tied to the clause, policy, statute, regulation, or other governing source that supports them.

4. Analytical scaffolds

• Start with a concise transaction overview: who is buying, what is being bought, how the deal is structured, and the overall recommendation.
• Define a uniform ordinal severity scale once and use it consistently throughout the memo.
• Run the issue analysis once per distinct issue, not once per workstream.
• For each issue, state:
  • severity;
  • scale or quantification from the source materials;
  • the document, clause, policy, or report that interacts with the issue;
  • the downstream consequence for the buyer or transaction.
• For quality-of-earnings or other financial adjustments, present:
  • the adjustment basis;
  • the annualized amount;
  • the implied enterprise-value impact at the deal multiple;
  • the resulting normalized earnings view.
• For insured-exposure topics, identify:
  • what the exposure is;
  • whether it is covered, carved out, or uncertain;
  • what protection is still needed because of the exclusion or limitation.
• For related-party expenses, classify each item as:
  • appropriate add-back;
  • ongoing run-rate expense;
  • replacement cost after closing.
• For environmental or similar contingent liabilities, compare estimated exposure to any contractual protection and state whether a separate escrow, specific indemnity, special escrow, or other remedy is warranted.
• Convert each material issue into a deal-protection recommendation tied to the issue’s severity and practical risk.

5. Vertical / structural / temporal relationships

• When a risk appears in multiple sources, reconcile the documents rather than treating them as independent findings.
• When a diligence finding depends on a draft SPA term, compare the finding to the current draft and state whether the draft already addresses it, partially addresses it, or leaves it open.
• When a risk has a timing dimension, distinguish pre-signing, signing-to-closing, and post-closing implications.
• When a liability could survive closing, make that temporal consequence explicit.
• When insurance coverage depends on exclusions, endorsements, or definition changes, analyze the exclusion against the actual exposure class rather than the headline policy label.

6. Output structure conventions

• Write an IC-ready due diligence summary memo in plain business-legal prose.
• Open with a transaction overview and bottom-line recommendation.
• Include a severity-tiered findings section using a single ordinal scale and keep the highest-risk items together.
• Include a financial adjustments section that ties each adjustment to enterprise-value impact and normalized earnings.
• Include a separate insurance/excluded-exposure discussion for items that are not clearly covered.
• Include a related-party expenses discussion when affiliate or management-type fees appear in the materials.
• Include an environmental or contingent-liability discussion when relevant protection caps or backstops appear.
• Include a deal-protection section that assigns a specific protection to each critical or material issue.
• End with a Recommended Actions block that uses imperative verbs, identifies the responsible role where available, and includes a timing anchor tied to the signing/closing process or another source-based deadline.
• Keep the memo concise, decision-oriented, and ready for investment committee circulation.