Private Equity Due Diligence Checklist

A forensic checklist designed for deal teams, analysts, and investment committees. Use it as a standalone screen, or run it inside FFL Tools to compare every answer against 140 documented corporate collapses.

Open the Checklist See a Real IC Memo

Why a forensic checklist

Standard DD checks the boxes. Forensic DD checks for what is missing.

Most PE due diligence is built around confirmation: confirming revenue, confirming contracts, confirming legal cleanlinesss. Forensic due diligence is built around contradiction — looking for the asymmetry between what the deal says and what the evidence supports.

This checklist merges the two. It covers the standard commercial, legal, financial, and governance workstreams, but each item is written to surface a pattern that has appeared before a major loss of capital.

9 workstreams · 55+ questions · 140 historical cases

The Checklist

A PE-Screening Framework, Item by Item

Each item below is a question a deal team should be able to answer before a term sheet is signed. If the answer is unclear, the item becomes a diligence workstream.

01 · Governance & Control

Board composition: are independent directors truly independent, or aligned with management through side arrangements?
Step-in rights: can the sponsor replace management, call an emergency board, or block material transactions?
Related-party transactions: map all entities owned or controlled by founders, family, or senior management.
Audit committee history: has the auditor changed unusually, issued late filings, or qualified opinions?
Shareholder agreements: tag-along, drag-along, and veto rights are clear and enforceable in the target jurisdiction.

02 · Financial Statement Forensics

Revenue quality: compare cash collections to recognized revenue; investigate timing of large year-end sales.
Working capital normalization: exclude one-off items and adjust for changes in payment terms with suppliers or customers.
EBITDA add-backs: verify that every adjustment is truly one-time and not a recurring feature of the business.
Cash conversion: days payable, days receivable, and inventory turns relative to sector peers and historical trends.
Off-balance-sheet exposure: operating leases, supply chain finance, special-purpose vehicles, and contingent liabilities.

03 · Management & Incentives

Skin in the game: how much of management's net worth is in this transaction, and how much is other people's money?
Compensation structure: are bonuses tied to metrics that can be gamed (revenue, not cash; EBITDA, not return on capital)?
Management background checks: prior bankruptcies, regulatory sanctions, litigation, and undisclosed side businesses.
Succession depth: is there a second layer of leadership, or is value concentrated in one or two individuals?
Equity grant timing: historical stock-option grant dates and any clustering around low-price periods.

04 · Legal & Regulatory Risk

Material litigation: active, threatened, and historic cases; settlement amounts and disclosure completeness.
Regulatory licenses: are all required permits current, transferrable, and free of enforcement actions?
Jurisdictional risk: enforceability of contracts, creditor rights, and bankruptcy proceedings in the domicile.
Data privacy and cybersecurity: breaches, remediation costs, and compliance with applicable regimes.
Anti-corruption / sanctions: exposure to FCPA, UK Bribery Act, OFAC, or equivalent frameworks.

05 · Commercial & Market Position

Customer concentration: revenue dependency on top 3-5 customers and the contractual stickiness of each.
Supplier concentration: single-source inputs, pricing power, and disruption risk.
Competitive moat: switching costs, network effects, and durability versus low-cost or tech-enabled entrants.
Market growth assumptions: is the target's growth plan consistent with observable industry data?
Backlog quality: signed contracts versus letters of intent, and the cancellation terms of each.

06 · Capital Structure & Cash Flow

Debt capacity post-close: pro forma leverage, covenants, and headroom under stress scenarios.
Free cash flow conversion: EBITDA to cash after capex, working capital, taxes, and interest.
Capex requirements: maintenance versus growth capex, and any deferred investment that will be inherited.
Dividend recap history: has the sponsor already extracted cash, leaving the business undercapitalized?
Refinancing risk: maturity wall, interest-rate exposure, and access to credit markets.

07 · Exit Clarity

Likely buyer universe: strategic acquirers, financial sponsors, IPO market, and secondary buyout appetite.
Exit timing: is the investment horizon realistic given the business cycle and sector dynamics?
Value-creation plan: are the EBITDA expansion targets achievable without heroic assumptions?
Control premium: is the deal priced for a control position or for a minority stake with limited influence?
Tag-along / drag-along: can the sponsor exit cleanly if other shareholders disagree?

08 · ESG & Reputational Risk

Environmental liabilities: contaminated sites, remediation reserves, and regulatory non-compliance.
Labor practices: union relationships, wage disputes, and key-person retention risk post-close.
Customer reputation: online reviews, regulatory complaints, and media coverage trends.
Supply chain ethics: modern slavery, conflict minerals, and sub-tier supplier audits.
LP alignment: does the asset expose the fund to ESG-related divestment or reporting pressure?

09 · Structural & Counterparty Risk

Instrument ranking: seniority, security, guarantees, and inter-creditor arrangements.
Currency and jurisdiction mismatch: revenue in one currency, debt in another, domiciled in a third.
Key counterparty risk: banks, insurers, advisers, and their financial health or renewal risk.
Transaction structure: equity vs. asset deal, tax step-up, and indemnification caps.
Information rights: monthly reporting, audit rights, and information covenants post-close.

Scoring convention

76–100: Pass / low concern

60–75: Review / condition required

0–59: Red flag / resolve before commitment

Inside FFL Tools

This checklist is already built into the engine.

FFL Tools turns the checklist into a scored screening. For each dimension, you answer 5–7 calibrated questions. The engine compares your answers against collapse-pattern data from 140 cases and generates a Private Equity-calibrated IC memo.

Deal Intake

Capture asset class, instrument, ownership, valuation, and expected return.

Additional Context

Add jurisdiction, sector, and any known concerns to focus the pattern match.

Forensic Screening

Answer the 55 questions across 9 dimensions and receive per-dimension scores.

IC Memo Export

Download a clean, unbranded memo ready for your Investment Committee.

Example output

Meridian Industrial Holdings

58/100 — MODERATE RISK · PROCEED WITH CONDITIONS

See how the same 9 dimensions produced a scored IC memo for a real-style PE case — including red-flag analysis, review-required items, and a due diligence checklist.

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