In the world of mergers and acquisitions, it is important for a purchaser to conduct its “due diligence” with respect to the historical and forecasted activities of a potential target company. Due diligence could include inquiries into the financial, tax, legal, commercial, human resources, regulatory and environmental affairs of the company. The following addresses the financial aspects of due diligence.
What is financial due diligence?
For starters, financial due diligence is not an audit. An audit provides an opinion on whether the historical financial statements present fairly the financial position of a company. Financial due diligence, on the other hand, goes deeper to understand the reasons for historical and forecasted trends, and reports on the relevancy of these trends to the purchaser. The scope of financial due diligence differs from business to business depending on the size and industry of the target company. Typically, the scope would include an analysis of the historical quality of earnings (i.e. the sustainability of historical earnings before interest, taxes, depreciation and amortization or “EBITDA”), quality of net assets, working capital requirements, capital expenditure requirements, financial debt and liabilities, and forecasted financial results. Based on the outcome of the due diligence a purchaser should be able to assess, based on their risk profile, whether there are any potential deal breakers, whether the structure and price of the acquisition is appropriate or whether appropriate warranties and representations are included in the purchase agreement.
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When do I need to conduct financial due diligence?
Financial due diligence should be undertaken whenever a purchaser is considering acquiring a new business. Ideally, the financial due diligence process should commence as soon as possible when negotiating to acquire a business. Once an expression of interest or letter of intent (which lays out the structure of the transaction) has been agreed by both the purchaser and the vendor, the financial due diligence should begin. Adequate time should be allocated to the financial due diligence process. Financial due diligence inquiries can range between two to four weeks depending on the size of the target company and scope of the work.
Who should complete the financial due diligence?
Financial due diligence can be conducted either internally, by the acquirers’ own accounting and finance function, or by external independent due diligence professionals. The benefits of using external professionals include: 1) The diligence is based on an independent viewpoint from a party that has no direct interest in the outcome of the proposed transaction; 2) The diligence is completed by professionals who understand the dynamics of a transaction environment; and 3) Internal resources, which are likely already constrained, can be dedicated to integration and post transaction planning
We at K & T Forlex provide you with legal and financial consultation. Your company might require you to provide a Land draft, Company draft, Monthly, quarterly, or yearly financial reports. We at K & T help you to create that and visualize the best solution for your business based on the reports. We help you stay updated with any kind of data that you need for a smoother run of your business.
• Company Due Diligence, Key Managerial Personnel (KMP) Due Diligence, Land Due Diligence (15/30+ Years) reports
• Monthly/Quarterly/Yearly Due Diligence Reports for IPO purpose
• Audit and Balance Sheet analysis
Contact US:
Warun Kumbhar
Email: [email protected]
Phone: (+91) 76207 01201
Website: https://www.ktforlex.com/