The Canadian M&A transaction value market is expected to reach $89.32 billion in 2025. This impressive number alone marks the strategic significance of due diligence for a competitive business landscape.
Sustainability, risk management, and tech-savvy solutions are core priorities for deals in the highly-evolving mergers and acquisitions (M&A) market. The M&A transactions vitally depend on sustainability and environmental, social, and governance (ESG) conditions. And here’s where enhanced due diligence practices come into play.
There are concerns about the due diligence meaning in business. Our analysis shows that due diligence Canada is part of the global business environment and there are no considerable deviations from globally accepted practices.
Businesses that want to leverage wider M&A opportunities are strategically interested in aligning with sustainable target companies. Due diligence embraces a comprehensive assessment of a target company to estimate significant risks and broader opportunities before making the purchase or the investment. The informed decision based on a rigorous due diligence report helps stakeholders decide whether an intended M&A or an investment is a sound fit.
Our new article dives deep into the importance of due diligence process in Canada with comprehensive step-by-step performance guidelines.
What is due diligence in business?
Due diligence entails the steps taken by business owners to make informed decisions before investing in or acquiring a new entity. The due diligence process saves companies from investment risks and red flags associated with the target company, including regulatory compliance, non-liability, workplace ethics, profitability, and corporate social responsibility.
Beyond this straightforward definition, there’s much more to the due diligence meaning in business.
In business practice, the due diligence process examines the target company before the M&A, IPO, or the target company’s audit. A due diligence report investigates and assesses commercial and legal risks and potential opportunities promised by the future transaction.
Critical due diligence areas in 2025
Due diligence compliance will urge businesses to account for the forecasted market tendencies in 2025 and beyond:
- The global M&A landscape will depend on volatility and risk management shifts. Geopolitical turbulence and economic fluctuations will further cause uncertainties, which assumes an even more rigorous assessment of risks associated with M&A transactions and investments.
- Geopolitical events will determine M&A decision-making. Political instability combined with the shifts in trade dynamics, coupled with regional conflicts, will lead to unforeseen risks and opportunities.
- The shifts in global policies will modify the regulatory climate, trade agreements, tax reforms, deal structures, and cross-border transactions, all strategically important for successful M&A activities.
- Digitization will further integrate digital technologies into M&A deals. Businesses are pursuing advanced analytics, data-driven insights, and virtual data rooms to achieve enhanced transactions.
- Exchange rates will fluctuate in cross-border M&A transactions. The uncertain currency valuations will necessitate rigorous currency risk management to mitigate potential transaction risks.
Types of due diligence
The scope of the due diligence practice is vast and varied, covering multiple business aspects ranging from finances and tax issues to operational, legal, and regulatory aspects.
Whatever the type, the due diligence process helps the buy-side businesses audit the sell-side companies to detect critical risks and spot wider opportunities.
| Due Diligence Type | Description |
| Legal due diligence | Legal due diligence examines a target company’s compliance with laws and regulations, including intellectual property and contractual and pending litigation issues. Legal due diligence reporting reveals all the existing and potential legal issues. The process ensures that a target company corresponds to government, legal, regulatory, and compliance standards, including licenses, contracts, pending liabilities, and regulatory issues.The legal due diligence report reviews contracts, corporate documentation and statements, board meeting minutes, pending litigation, and intellectual property rights. Legal due diligence helps businesses assess all the potential risks and liabilities that could affect future M&A transactions, investments, or partnerships. |
| Operational due diligence | Operational due diligence requirements entail strategic policies and processes to assess transaction efficiency and determine potential improvements. The process evaluates operational risks, assets, products and services, technology, and sales and marketing to support post-acquisition integration and attain efficient integration. Operational assessment signals potential investors the risks to be addressed and whether operational improvements will create added value in the transaction. Strategically, operational due diligence prioritizes a target company’s operations and how it turns inputs into outputs. |
| Safety due diligence | Safety due diligence assumes care, judgment, prudence, and employee activities. Employers are responsible for all the precautions that would prevent workplace accidents and injuries in line with applied work health and safety (WHS) regulations.Part of safety responsibilities, safety due diligence is part of a broader HR due diligence that involves the entire organizational structure, including employee benefits, compensations, and HR-related disputes or issues. |
| Software due diligence | Information technology due diligence audits a target company’s IT infrastructure and processes. Due diligence safety is a security assessment that evaluates the company’s IT structures and detects potential security risks, like whether sensitive data is well managed and protected. Internal software due diligence evaluates a company’s software and technology during M&As, investments, or IPOs. The process thoroughly reviews the software and business practices:Examination of the software’s structure, architecture, code, and quality to objectively assess revenue potential. Analysis of intellectual property, compliance, and security measures.Comprehension of technical debt and related liabilities. |
How to perform due diligence in Canada
Statistically, some 80% of acquisitions fail due to improper due diligence. To avoid crucial mistakes and omissions, this part provides a step-by-step guide to performing due diligence in Canada.
Stick to the best practices businesses use to make their best from M&A deals, investments, and business partnerships with the target entities.
Define objectives and scope
Due diligence aims to verify the accuracy of information the target company provides and appraise its value for M&A deals or investments.
The first thing to understand is that there are no two identical M&A deals. Each transaction is unique because every business is different, considering its strategic goals and scope of operation. Companies also differ in terms of size, business ownership, leadership, corporate culture, and industry niche.
Due diligence aims to:
- Spot a target company’s competence
- Identify potential threats and areas for improvement
- Perform thorough research before the investment
- Reach an informed conclusion
- Enhance trust among shareholders
- Warrant safe completion of the transaction
- Combine all the necessary data.
| Due Diligence Type | Objective |
| Commercial due diligence | Assess strategic opportunity Evaluate market size, market share, competition, and future profits. Ascertain the transaction’s profitability. |
| Financial due diligence | Assess the target company’s financial standingForecast of potential threats that can further materializeReview assets, cash flow, financial statements, and obligations. |
| Legal due diligence | Assess current and future risks Consider the liabilities of the target companyExamine pertinent contracts. |
| Operational due diligence | Evaluate the target company’s operational facilities and practices Assess operational risks Appraise whether operational adjustments will increase the value of the transaction. |
| Tax due diligence | Examine taxes and tax liabilities incurred by the target companyVerify tax returns for the last three to five yearsProvide tax audits and agreements with tax authorities. |
| Intellectual property due diligence | Examine a target company’s intellectual propertyExplain how intangible assets increase a target company’s valueAssess patents, copyrights, and trademarks in terms of their insurance and protection. |
| Regulatory due diligence | Target highly regulated industriesSpot legal and regulatory risksComply with the zero-tolerance policy. |
| IT due diligence | Emphasize security assessment Examine a target company’s IT infrastructure Identify weak spots Assess sensitive data management and protection. |
| HR due diligence | Examine employee-and-management paperworkReview corporate cultureMaintain responsible business conductPrevent forced and child laborIdentify people-based hazards.Detect HR-related issues, concerns, and complaints. |
| Environmental due diligence | Examine the compliance with environmental laws Review environmental licenses, disposal regulations, and permits. |
Gather relevant documents and data
The primary responsibility of the due diligence team is to investigate the target company thoroughly.
Businesses perform due diligence through meticulous preparation. The first step is to gather all the relevant documentation and data about the target company. This is done by examination of financial records, legal documents, operational aspects, and IT infrastructure.
The preparation stage of business due diligence involves document reviews for potential issues to identify red-flag areas that require an in-depth investigation within the due diligence process.
Conduct a thorough review of financial, operational, and legal aspects
Due diligence reporting thoroughly examines a target company’s financial, legal, and operational aspects to mitigate potential risks and help stakeholders make informed decisions.
The executive team performs legal due diligence to review a target company’s business, legal standing and liabilities, financial statements, and operational nuances. Due diligence helps businesses evaluate the target entity’s suitability for acquisition by detecting potential risks and liabilities that may adversely affect the intended transaction.
Compile findings into a clear report
The reporting stage precedes the final decision-making. The executive team in charge of conducting due diligence obligations compiles and presents findings to stakeholders by:
- Structuring and documenting all findings in a clear manner
- Presenting a comprehensive due diligence report
- Highlighting insights and recommendations
A due diligence report is a final document summarizing all findings to empower decision-makers with a solid stance on intended investments, M&As, and other business transactions.
How virtual data rooms enhance due diligence
While the due diligence process applies tech-savvy tools, more and more businesses are leveraging virtual data rooms (VDRs) to store their documents and protect sensitive data.
Built-in cloud-based virtual data rooms allow businesses to save up to 50% of time owing to the centralization of the due diligence process.
VDRs are secure document storages enabling controlled access to sensitive information and requests. Stakeholders can discuss any matters openly and comprehensively to achieve enhanced decision-making.
Collaboration tools like AI-powered document analysis allow VDR participants to:
- Access and safeguard sensitive information
- Collaborate in real-time across the departments
- Extract core information from deal documents
- Exchange custom prompt templates
- Keep all documents safe from outside access
- Follow-up the files
- Keep records
- Make comments and questions
- Manage permissions
- Revoke access after download
- Share all the data for the due diligence report
- Share confidential documents with third parties
- Track file changes
- Track and manage documents
Virtual data rooms (VDRs) ensure due diligence compliance:
- Customizable environments: VDRs are shared branded workplaces used by authorized users.
- Document security assumes watermarking and redaction to protect confidential data.
- Document security assumes watermarking and redaction to protect confidential data.
- Role-based access: customized permissions control the access to shared information.
- Secure data repository: VDRs provide data encryption and robust audit trails to track access and sustain security.
- Q&A workflows: smooth collaboration between the parties, improve communication, and make informed decisions among stakeholders.
Trusted due diligence data rooms for M&As in Canada
Explore the best Due Diligence Data Rooms for your business
Due diligence in workplace
Workplace due diligence ensures a decent level of care and judgment in occupational health and safety.
The target company should adhere to Canada’s occupational health and safety legislation.
Employers are expected to take reasonable precautions to avoid workplace incidents and protect employees from adverse impacts. Reasonable care, caution, and proper action are expected to be taken under similar circumstances.
The Labour Program of Canada obliges reasonable persons to take all possible, suitable, and rational precautions under particular circumstances.
Workplace due diligence encompasses written documentation of disciplinary measures for breaching safety and health regulations.
Employers exercise due diligence by detecting any possible workplace hazards and taking relevant action to prevent related incidents and injuries. This is how due diligence provides legal defense for a person who might be charged under occupational health and safety legislation.
Given that workplace due diligence was duly exercised, a defendant would be found non-guilty. He/she should also prove they’ve taken all reasonable precautions to protect the employees.
Employers establish due diligence by:
- Keeping written occupational health and safety policies and procedures
- Performing workplace safety audits
- Detecting and correcting the hazards
- Providing workforce with a safe and secure workplace environment
- Arranging proper training and educational sessions for employees on workplace health and safety practices
- Inspecting workplace areas with hazardous conditions
- Taking reasonable measures to prevent harm
- Ensuring proper comprehension of hazards and preventative measures among the workforce
- Monitoring the workplace to make sure all the staff members follow the established policies and procedures.
Examples of due diligence in the workplace
Employers deploy incident and accident investigation systems to report ‘near misses. These investigations provide essential information to improve workplace standards and practices.
Due diligence in the workplace assumes clear answers to the following health and safety questions:
- How do you identify and control workplace hazards?
- Are safety standards integrated all across your workplace?
- What are your safety and health objectives?
- Do you regularly identify hazards at the workplace?
- What are the implemented control measures to spot hazards?
- Are your staff aware of safety and health responsibilities?
- Have you trained your employees to work in a safe and protected environment?
- How can workers report hazards and unsafe conditions?
- Who’s accountable for health and safety?
- Is your organization legally compliant with inspectors’ orders?
- How often do you review your occupational health and safety program?
Key questions to ask when performing due diligence
Due diligence questions to ask when buying a business:
1. Why is due diligence vital for M&As?
Due diligence encompasses strategic actions that help business owners avoid risks and make informed decisions on the target companies before merging, acquiring, or investing in them
2. What’s the role of the due diligence report?
A due diligence report investigates and assesses all the risks and business opportunities associated with the target company and future transactions.
How does due diligence benefit Canadian businesses?
Due diligence efforts save businesses time and money in the long-term perspective. It is important to follow all the stages and best practices to make smart investments and informed M&A decisions.
3. What due diligence questions do business owners ask most often?
It depends on a case-by-case basis, while every business is unique and there are no two same M&As.
Our Due Diligence Checklist will help you cope with all critical issues
Tools and templates for due diligence
Due diligence software
Due diligence software helps businesses explore and investigate target companies before making M&A transactions by:
- Streamlining workflows
- Complying with applicable regulations, like ABAC, AML, and ESG, among others
- Automating time-consuming processes without human intervention
- Making informed recommendations about the target companies
- Validating data accuracy
- Encrypting all data
- Mitigating breaches or unauthorized access
- Complying with regulatory scrutiny.
- Allowing for independent verification of the data provided by third parties.
M&A due diligence software helps businesses centralize all the information regarding future partnerships.
Due diligence request list
Make sure the due diligence directive follows these parts:
- Organization
- Ownership and control
- Assets
- Core operations
- Shareholder value
- Financial flows
- Internal policies
- Senior management
- Human resource management
- Market growth potential
- Intellectual property
- Reports and statements
- Legal and regulatory compliance
- Environmental adherence
- Litigation
- Contracts and commitments
- Taxes
Due diligence M&A templates
Readymade templates will ensure a consistent due diligence process:
- M&A Due Diligence Data Collection Template
- M&A Buyer Due Diligence Checklist Template
- M&A Seller Pre-Due Diligence Checklist
- M&A Seller Due Diligence Checklist
- M&A Due Diligence Report Template
Conclusion
In today’s competitive landscape, the due diligence process is at the core of informed business decisions. With nearly 80% of acquisitions failing, the process is vital for successful M&A deals.
Considering current uncertainties and market fluctuations, businesses should thoroughly investigate the target companies before M&As.
There’s no room for skipping while the due diligence report provides a complete assessment of commercial and legal risks associated with the future transaction.
In 2025 and beyond, tech-savvy solutions, AI tools, software, and virtual data rooms will propel enhanced due diligence in M&A deals.