TrueValue M&A Network
Financial due diligence specialists
Financial due diligence tests the numbers the price was struck on: whether the earnings are real and recurring, what working capital the business actually needs, and what debt and debt-like items the buyer would inherit.
Financial due diligence specialists
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What financial due diligence specialists do
A financial due diligence provider investigates the target’s historic trading, the quality and sustainability of its earnings (including every add-back the seller has claimed), the normal level of working capital, net debt and debt-like items, the forecasts, and the accounting policies and controls. The output is a report — red flag or full scope — that tells the buyer what they are actually buying and what should change in the price, the structure or the warranties.
It is the single piece of work most likely to change the price. A working capital peg set on the wrong month, or an add-back that turns out to be recurring cost, moves the value by more than most negotiations do.
When to engage them
After heads of terms and exclusivity, before the share purchase agreement is agreed. Scope it with the adviser and the lawyer so the findings feed the price adjustment mechanism, the warranties and the indemnities rather than arriving after they are drafted.
Usually active at
- In due diligence
What they typically help with
- Quality of earnings and add-back testing
- Normalised working capital and the completion peg
- Net debt and debt-like items
- Forecast review and sensitivity
- Findings that feed price, structure, warranties and indemnities
Questions to ask before you engage
- 1. What scope do you propose — red flag or full — and what would change your recommendation?
- 2. How many diligence reports have you delivered in this sector and at this size in the last two years?
- 3. Who leads the work, and how will findings reach me as they emerge rather than in the final report?
- 4. Is the fee fixed for the scope, and what would trigger a change?
- 5. Will your report be addressed to my lender as well, if the deal is funded?
How financial due diligence specialists are paid
Financial due diligence is usually charged as a fixed fee for an agreed scope, scaled to the size and complexity of the target and the depth of the review. A red-flag review costs less than a full-scope report. Some firms offer an abort fee structure if the deal falls away part-way; ask.
How TrueValue fits alongside
TrueValue’s due diligence software sends the request list to the seller, files every response as evidence on the item, and reads the accounts that arrive into statements with the provenance of each figure. The IC memo’s Missing Information section states what the record does not hold, so the diligence scope starts from what is actually unknown rather than from a template.
Frequently asked
What is a quality of earnings report?
- A review of a target’s reported earnings that tests each adjustment the seller has made, identifies non-recurring or non-cash items, and arrives at a view of sustainable earnings. It is the core of financial due diligence and the number the multiple is applied to.
How long does financial due diligence take?
- Typically a few weeks from receipt of a complete information pack, depending on scope and on how quickly the seller answers requests. A well-organised data room and a responsive seller shorten it considerably.
Do I need financial due diligence for a small acquisition?
- The work scales with the deal, but the principle does not: a buyer who relies on the seller’s adjusted EBITDA without testing it is paying for the seller’s arithmetic. A red-flag review is the minimum on any deal where the price rests on earnings.
Listings in the TrueValue M&A Network are provided for information. A listing is not an endorsement or a recommendation, and TrueValue does not guarantee any professional’s performance. You must carry out your own due diligence before engaging anyone, verify regulated status independently with the relevant regulator, and seek qualified legal, financial and tax advice where appropriate.