INTRODUCTION TO FINANCIAL DUE DILIGENCE
Examining the pertinent value drivers and potential risks associated with a target company can enhance the likelihood of a prosperous transaction. Quartis Consulting LLP’s Financial Due Diligence services focus on evaluating the factors influencing cash flows and sustainable profits within a company, that’s precisely why our Financial Due Diligence methodology is crafted to enhance the decision-making during the deals, help as an aid in negotiations, and ultimately contribute to planning and execution of the same, with a primary focus on valuation-related facets of the transaction.
Drawing upon our extensive experience assisting both buyers and sellers, we provide expert guidance and in-depth insights into the target entity under consideration. Our approach involves conducting a comprehensive examination of the target’s overall financial health, enabling a thorough understanding of its potential and providing expert insights into its future trajectory. The primary aim of financial due diligence is to identify any financial risks or concerns that could affect the value of the investment or acquisition. This process holds immense significance in mergers and acquisitions, empowering investors and acquirers to make informed decisions regarding the feasibility of proceeding with the transaction.
Quartis Consulting LLP globally boast extensive experience and proficiency in handling intricate cross border transactions. Our approach involves adeptly navigating the heightened challenges associated with cross border assignments. While we tailor our strategies to each project’s unique requirements, we consistently ensure that dedicated client service partner lead and oversee cross border engagements, irrespective of the geographic location
1) Quality of earning (QofE)
2) Net Debt
3) Net Working Capital (NWC)
> Audited financial statement
> Balance sheets
> Assets and liabilities
> Cash flows
> Capital expenditures
> Projections
1) Sell – side
In mergers and acquisitions, we generally think of the buyer performing due diligence. However, it’s important for the company being acquired to do their due diligence too. Why? Because 46% of deals fail due to issues surfaced during the due diligence process. So, if the sell-side can perform due diligence on their own company first, issues can be identified and gaps filled prior to the buyer getting involved.
(Alternative)
In the vendor due diligence process, where the seller initiates an independent and thorough report (conducted for the buyers’ benefit), the primary goal is to cater to the requirements of potential purchasers. This approach aims to streamline the due diligence and negotiation phases, reducing the necessity for prolonged and extensive scrutiny by providing comprehensive information upfront. Ultimately, it facilitates a smoother and more efficient transaction process for both parties involved.
2) Buy – side
For the buyer, Financial Due Diligence is the first step on the road to peace of mind during an M&A deal. A thorough understanding of the target’s financial health and prognosis can mean the difference between a good investment and a very bad deal indeed. The most common way to proceed is to analyse financial statements, order forecasts, market and industry data, and even interviews with key employees. Because of the sensitive nature of this information, the buyer and seller will need to share documents in a secure data room.
(Alternative)
Engaging in financial due diligence from the buyer’s perspective offers an opportunity to validate critical deal assumptions and hypotheses. In essence, it empowers potential investors to make well-informed decisions based on a thorough examination of the financial aspects of the prospective transaction.
1) Identify potential risks associated with the target company.
2) Determine the viability of the acquisition.
3) Understand the true value of the target company.
4) Identify the issues that should be addressed before a purchase agreement is signed.
5) Ensure that the buyer has enough resources to complete the acquisition.
6) Reduce the cost of acquisition.
7) Minimise legal costs.
8) Avoid post-acquisition pitfalls
> Proactively addressing potential issues that may arise during the transaction is made possible through the foresight provided by financial due diligence
> Informed decision-making and negotiations are facilitated when both parties have a synchronized understanding of each other’s financial positions.
> The versatility of financial due diligence deliverables adds a layer of flexibility to the process.
> The impartial perspective offered by a third-party, unbiased opinion fosters enhanced trust between the involved parties
> Crucially, financial due diligence enables the assessment of the potential future position of the entity, serving as a decisive factor that could make or break the deal for all parties involved.