Direct deal due diligence: a checklist for family offices

Due diligence on a direct deal is the work a family office does to confirm that the business, its numbers, its contracts, its tax position and its people are what the seller says they are, and that the price makes sense given what could go wrong. It is the part of direct investing that offices most often underestimate. BNY Wealth's 2025 survey of 282 single family offices found the single largest challenge in direct investing was that "it is time-consuming", and BlackRock's 2025 survey found 75% of offices report gaps in private market analytics expertise. The checklist below is organised by workstream. Not every item applies to every deal, but each should be consciously skipped rather than forgotten.

Commercial

• Market size and growth, from sources other than the seller's deck.

• Customer concentration: revenue share of the top five and top ten customers, contract lengths and renewal history.

• Reference calls with customers, former customers and suppliers, arranged by the buyer and not the seller.

• Competitive position and pricing power, tested against gross margin trends.

• The investment thesis written down in advance, with the two or three assumptions that would have to be wrong for the deal to fail.

The last item matters more than it looks. Institutional Investor reported in 2025 one principal whose office spends three to six months producing a sector white paper before investing in a new area, and another who described a CIO "doing some direct stuff in spaces where he had no expertise". The 2024 Bastiat Partners survey reported by CNBC found families may see 10 deals or more for every one that works.

Financial

• Quality of earnings review by an independent accountant, reconciling reported EBITDA to cash.

• Adjustments and add-backs itemised and challenged one by one.

• Working capital trend over at least 24 months and a normalised target for the completion mechanism.

• Debt and debt-like items, including deferred consideration, leases, pension deficits and unpaid tax.

• Capital expenditure history split between maintenance and growth.

• Sensitivity of the returns model to exit multiple, leverage cost and growth.

The last point has become harder to satisfy. Bain's 2026 Global Private Equity Report calculated that a typical buyout needs 10% to 12% annual EBITDA growth to produce a 2.5x return over five years, against roughly 5% a decade earlier, because borrowing costs are 8% to 9% and multiple expansion can no longer be assumed. Bain's 2026 outlook also noted average holding periods have drifted to around seven years, so the model should be run beyond the base case hold.

Legal and tax

• Corporate records, cap table and any options, warrants or convertible instruments.

• Material contracts for change of control, exclusivity and termination rights.

• Litigation, regulatory correspondence and licences.

• Intellectual property ownership, including assignments from founders and contractors.

• Employment terms for key staff, restrictive covenants and any disputes.

• Data protection and cyber security posture, especially where customer data is held.

Tax

• Historic compliance in every jurisdiction where the business operates.

• Structure of the acquisition: share or asset deal, and the holding entity for the family.

• Treatment of management rollover and incentive equity.

• Withholding and repatriation of dividends and exit proceeds to the family's home jurisdiction.

• Indemnity or warranty and indemnity insurance for pre-completion tax liabilities.

Management and ESG

• Background checks on founders and senior executives, including credit, litigation and media searches.

• Succession depth below the chief executive.

• Alignment: how much of their own capital management is rolling, and what the incentive plan pays at different exit values.

• Governance after completion: board composition, reporting cadence, reserved matters and information rights.

Citi's 2025 report found 52% of family offices that invested directly in the prior year favoured growth-stage companies, where management depth is often thin. A family that will be the largest shareholder should decide before signing whether it has the people to replace a chief executive, a question covered in building a direct investment team.

ESG where relevant

• Environmental liabilities on owned or leased sites, and transition exposure for carbon-intensive businesses.

• Supply chain and labour practices where the brand or the family's name is exposed.

• Any exclusions in the family's investment policy, applied before the deal reaches committee.

Running the process

Campden Wealth's 2025 North America report found 80% of offices hold direct investments, so the question is rarely whether to do diligence but whether the office has the capacity to do it properly. In a syndicated deal the temptation is to rely on the lead's work; the reasons not to are set out in club deals: how families syndicate. The findings should be presented to a committee with the authority to say no, which is the subject of the family office investment committee.