What is confirmatory due diligence, and what happens after the LOI?

What is confirmatory due diligence?

Confirmatory due diligence is the buyer's final verification phase after a letter of intent (LOI) is signed: the buyer checks that the facts it priced on are true, using the documents, systems and people behind them. Preliminary diligence decides whether to bid; confirmatory diligence decides whether the bid stands.

For an M&A advisor, the practical point is that confirmatory diligence is where the price is tested. Every gap the buyer finds becomes a lever for a price reduction, an earn-out, a wider escrow or a longer exclusivity request. Anything the seller knew about and did not disclose earlier is the most expensive kind of gap.

How does preliminary diligence differ from confirmatory diligence?

Preliminary diligence is top-down and selective; confirmatory diligence is bottom-up and complete. The same topics appear in both, but the evidence changes from summaries to source documents.

Process letters often tell bidders to list their "remaining confirmatory diligence items" in the final bid. That phrase is a signal: whatever sits on that list is a price risk the seller can still close before signing.

Where do records and data-rights items surface?

Records questions arrive in three places during confirmatory diligence: the information request list, the IT and security review, and the legal draft of the representations. A seller who has not mapped its systems answers all three slowly.

• Request list: buyers ask for contract repositories, customer correspondence, support histories and finance exports, then sample them against the CIM.
• IT review: buyers ask which systems exist, how long history goes back, who administers them and what will be retired after closing.
• Reps and schedules: intellectual property, data and privacy representations ask whether any data has been licensed, shared or encumbered.

That third item is the one advisors miss. If a client holds or is considering a license of its operational records to an AI developer, the buyer's lawyers will want to see it in the disclosure schedules, and a buyer who learns of it late reads it as a hidden encumbrance. Disclose it in the CIM or management presentation, long before the purchase agreement draft. The what-to-share-before-LOI guide covers the sequencing.

Why disclose a data license before confirmatory diligence starts?

Early disclosure turns a possible surprise into a priced, documented item. A license that is described in the CIM, with its term, exclusivity and scope, is just another contract. The same license discovered in week five of exclusivity is a reason to re-ask every other question.

An existing or contemplated license affects diligence in four ways:

1. Exclusivity: an exclusive AI-training license for an agreed term may limit what the buyer can do with the same records after closing.
2. Assignment: the buyer needs to know whether the license passes to it, ends at closing or needs consent.
3. Cash: a one-time license payment may sit in or outside the working-capital and debt-like-item definitions, depending on timing.
4. Records preservation: the licensed data set may need to stay intact through delivery, which interacts with any planned system migration.

SourceX is built so the company stays in control: nothing is binding until the company agrees price and terms and signs, and data is licensed, not sold. That gives an advisor room to sequence any licensing conversation around the sale calendar. The buyer list guide explains where AI data buyers sit relative to the strategic and financial buyers you already track.

Confirmatory diligence by client type

The records that matter differ by business model, so the request list should too.

Timing also matters. The due diligence duration question explains what slows the process, and a records inventory prepared early removes one of the common causes.

What to say to a client before the LOI

Keep the script short and tie it to price protection:

How partner rewards work for an advisor

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; a lead, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. The reward is a share of SourceX's fee and is never deducted from what the company receives.

Check your engagement letter and your firm's policies on fees connected to client companies, and read the program terms, before you register. See the referral opportunities for M&A advisors for how the role fits a mandate.

When not to raise it

Hold off if the client is below the 50+ full-time employees at peak threshold (contractors excluded), if the records mostly belong to its customers and no consent exists, if archives have been deleted, or if a trustee or court controls the assets and has not been involved. The who qualifies page lists the full baseline, and the company fit checker gives a preliminary, non-binding screen with no contact details required.

Next step

Add one line to your next diligence prep call: "Is any of our data licensed, or about to be?" If a client qualifies, register as a partner and make the introduction. Companies can also apply directly at sourcex.si/apply. For what happens afterward, see what happens after a company applies.