Reverse Due Diligence & buyer auditing — the three-dimension audit.

Buyers conduct forensic analysis on the agency. The Trust, But Verify mandate requires sellers to reciprocate. The asymmetry of information is structural — buyers run M&A repeatedly; most sellers run it once. Reverse Due Diligence closes that asymmetry on the buyer side.

§ 01 · Financial Health IndicatorsThree subdimensions, one outcome.

Leverage ratios. Request the buyer's current Debt-to-EBITDA ratio on a redacted credit-facility document or compliance certificate. Below 5× is the safety threshold. Above 6× is a High Severity red flag — highly leveraged buyers must prioritize debt service over earnout payments in any liquidity crunch. This is arithmetic, not discretion.

Capital reserves. Distinguish Committed Capital (raised, sitting in accounts, available immediately) from Contingent Financing (dependent on a bank or investment committee post-LOI). A buyer relying entirely on debt has no reserves to weather post-close crises — and undercapitalized buyers are statistically more likely to cut costs aggressively to service debt.

Credit-facility covenants. Even if a buyer wants to pay an earnout, their lender may contractually prevent it. Many credit facilities include Restricted Payment clauses that block earnout payments if the buyer's leverage ratio breaches a covenant cap. Cross-Default Risk is particularly dangerous — your earnout can be blocked by failures in the buyer's other portfolio companies, not yours.

§ 02 · Operational CredibilityPast behavior is the only reliable predictor.

Staff retention. Demand data showing retention above 80% at the 24-month mark across the buyer's last 5 acquisitions. The 24-month window matters — it captures the period after retention bonuses expire. Below 70% signals a slash-and-burn integration style that destroys client relationships and book value. A buyer who "doesn't track" retention is signaling either incompetence or concealment.

Integration systematization. Request a Written 90-Day Integration Plan before LOI signature. It must specify communication timelines to staff and clients, benefits transitions, AMS migration approach, named individuals responsible for each workstream, and contingency plans for critical disruptions. "We'll figure it out together" is a red flag for Integration Chaos.

Named Integration Team. Specific individuals with titles, experience, and contact information — introduced pre-close, not post-close. If the "deal team" disappears at close and is replaced by unknown operators, integration risk increases sharply. Continuity of the same integration lead through the earnout period is a credibility indicator.

§ 03 · Red Flag Recognition frameworkCritical, High, Moderate.

Critical Severity findings warrant immediate deal termination: pattern of retrades (renegotiating terms after LOI exclusivity), refusal to provide references (transparency is the currency of credibility — legitimate buyers can easily obtain permission from happy sellers), and "we don't track earnouts" responses (either systemic incompetence or deliberate concealment of failed earnouts).

High Severity findings require pausing the process pending written verification: pressure tactics with artificial deadlines (often masking Fund Deployment Pressure or absent committed capital), vague funding sources (verbal assurances without commitment letters expose the seller to Financing Contingency Risk), and history of rapid consolidation without integration infrastructure (correlates with below-average staff retention and aggressive cost-cutting).

Moderate Severity findings require investigation but do not automatically terminate: pressure to waive standard seller protections, deal-team changes post-LOI (bait-and-switch risk), client-concentration reduction demands (the buyer pushing integration risk back to the seller), and unusual employment terms suggesting the buyer doesn't expect the seller to stay.

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