Due Diligence for
Business Purchase
& Investment NZ

The documents reviewed in a due diligence process depend on the nature of the transaction but typically include financial statements for the past two to three years, the sale and purchase agreement, key customer and supplier contracts, employment agreements and any outstanding employee claims, premises leases and equipment finance arrangements, intellectual property documentation and any licences or permits required to operate the business.

We also review company records including the Companies Office register, shareholder agreements, any existing security interests registered on the PPSR and any outstanding litigation or disputes.

The documents available will vary between transactions. Part of the due diligence process is identifying what has been provided, what is missing and what the gaps might indicate. A seller's reluctance to provide certain documents is itself significant information.

Most business sale agreements are entered into conditionally — that is, the buyer agrees to purchase subject to conditions being satisfied, including a due diligence condition. The due diligence condition gives you a defined period (typically 10 to 15 working days) to review the business and either confirm that you are satisfied or cancel the agreement if you are not.

The due diligence condition is one of the most important protections available to a buyer. If properly drafted, it gives you the right to walk away from the transaction without penalty if the review reveals problems that affect your decision to proceed.

Many buyers make the mistake of signing a sale and purchase agreement before engaging anyone to carry out the actual review. This creates time pressure and can lead to poor decisions. Engaging Margate Group before you sign — or immediately after — gives you the best chance of a thorough review within the timeframe available.

In our experience the most common risks in NZ business purchases fall into a few categories. IRD obligations are frequently underestimated — many small businesses have outstanding PAYE, GST or income tax obligations that either are not disclosed or are not fully apparent from the financial statements provided.

Employment arrangements are another common area. Businesses often have undocumented or non-compliant employment agreements, casual arrangements that may actually be permanent employment, or unresolved employment disputes. These create direct liability for the new owner.

Key contracts are also frequently problematic. A business may have customer or supplier contracts that cannot be assigned to a new owner without consent, contracts that expire shortly after settlement or arrangements that are informal and undocumented.

Finally, the PPSR (Personal Property Securities Register) often reveals security interests over business assets that must be discharged before settlement. Failing to check the PPSR is a common and costly mistake.

Due diligence findings can directly affect the purchase price through negotiation. If the review identifies liabilities, obligations or risks that were not reflected in the agreed price, you have grounds to negotiate a price reduction, require the seller to remedy the issue before settlement or seek specific warranties and indemnities in the sale agreement.

In practice, most business sale negotiations involve some degree of price adjustment following due diligence. A business with clean records, compliant employment agreements and no outstanding liabilities commands its asking price. A business with problems provides leverage for the buyer.

This is one of the key commercial reasons to invest in thorough due diligence. The cost of the review is typically small relative to the price adjustments it can justify or the problems it can help you avoid paying for entirely.