The cost from a buyers perspective of the due-diligence process is not the big issue, the big issue is not doing due-diligence and ending up with a lemon or worse.

So for a buyer due diligence is only a cost if the deal eventually goes through unaltered, if the deal does not go through then it is probably more like an insurance premium, you pay it in the hopes that you are wasting your money but just in case you don't you'll be really happy you paid.

The statistics are (based on my personal observation, not exactly a large enough sample to extrapolate from) that out of every 10 deals there will be one or two with 'surprises' and those make up for all the money spent on the due diligences of the rest with plenty of spare change left over. The large majority of potential deals never reach that stage but are cancelled much earlier in the process for some reason or other, by the time an acquirer is prepared to put the money on the table for a full dd they are very serious about the deal.

As for 'how are you paid', I charge an hourly rate, it's by far the simplest way to make sure that I'm as independent and even keeled as possible.

Flat-fees can cause sloppy work (especially if there is more work than anticipated) or over-charging and a percentage of the possible amount (or even a success fee) would either be a bad match (because under $100K investment due diligence is usually very much abbreviated and on the high end the work is usually not that much more than in the middle).

Especially success fees are bad because this causes the due diligence to shift from being somewhat skeptical about claims to ignoring aspects of the target just to let a deal go through.

I find that regular 'hourly rates' are the best match for this kind of work, it means that if a due diligence unexpectedly costs more time (which you have relatively little control over as the person doing dd, after all the supply of information and transparency are not under your control but have a huge impact on the amount of time required) or if there is a large amount of material to absorb or extra areas of interest as dictated by the acquirer that there is no lack of motivation to do the work.

Of course, there will be plenty of parties that disagree with this, I'm aware of people and companies that do 'fixed fee' (but at a price point significantly higher than what I charge), and also of people operating on a 'success fee' basis but I'm just not comfortable with either of those.

Fee and work done should be in some sort of relationship to each other, 'value created' is hard to establish since that is mostly dependent on the deals that don't go through!

Personally, I'm most happy if I don't create 'value' but if everything the target claimed was found to be the truth and there is little or no friction.

As for the absolute amounts, a full legal, financial and technical due diligence can cost anywhere from 20K 'credits' to several 100K depending on the size of the target and the various requirements as made by the acquirer, especially financial can cost a very large amount of money in the case of a company with a long commercial history.

That's also why 'acquirer pays for dd' is a good principle.

One variation on this that I've seen is that if the deal falls through that the acquirer will pay for dd and if the deal gets executed that the dd costs will be paid from the investment.

I hope that answers your questions in sufficient detail.