Financial Due Diligence
Sell-Side and Buy-Side Financial Due Diligence
Both buyers and sellers involved in a transaction need to ensure the financial information is as accurate as possible to ensure a transparent process, pricing decisions, and meeting governance and risk management objectives. We put an emphasis on identification and assessment of risks and opportunities when looking at assets, liabilities, financial position, and results of the target company.
Validation of EBITDA
A deep dive into a company’s financial and operating information emphasizing EBITDA, commonly used to set enterprise value for middle market transactions because it provides a clearer picture of a company’s operating performance and profitability. For each transaction, earnings are typically normalized for non-recurring or out-of-period revenues and expenses. The financial diligence process will identify or validate add-backs/adjustments to reflect normalized earnings and help a deal participant analyze enterprise value before and after a contemplated transaction closes.
Addressing Accounting Issues
The financial due diligence analysis is not an audit and, therefore, no opinion is given. The analysis will uncover certain flaws in a company’s accounting process including compliance with GAAP.
Working Capital Assessments
As part of the analysis, we analyze the company’s cash cycles and cash demand required to operate the business by examining the management of assets/liabilities and the company’s ability to manage cash flow. Adjusting net working capital helps potential buyers understand the true working capital requirements of the business by evaluating seasonal variations, misstated receivables, obsolete inventory, changes in deferred revenue and adjustments to accrued liabilities.
