Due diligence is the “open the kimono” time of the M&A deal when the Seller reveals intimate details of the business, including (but not limited to) financials, customer information, pricing detail, sales pipeline, contracts, and employee compensation. Buyer and Seller remain separate entities, but they have very close ties.
Each side pays its own expenses. Buyer hires his own lawyers, accountants, investment banker, and other sundry consultants, and Seller retains her own similar set of advisors. Each side is responsible for paying only its own set of advisors.
However, Buyers may be able to negotiate with their advisors to accept payment after the deal closes, meaning a Buyer can pay the bills by either using Seller’s cash flow or perhaps by adding the cost of the advisors to the amount of money the Buyer borrows from other sources.
Due diligence means that you as a Buyer are spending a lot of money on auditors, lawyers, and other consultants, so refusing to move forward with those expenses until you know the Seller isn’t continuing negotiations with other Buyers makes perfect sense. You don’t want to show up on closing day only to discover that the Seller has picked a different Buyer!