Financial due diligence: know what you are buying before you sign.
VALLARIS™ tests a target’s earnings, cash, debt and working capital, and ties every finding to the price and the sale and purchase agreement. For buyers, sellers and investors in deals worth US$10M or more.
What is financial due diligence?
Financial due diligence is an independent review of a company’s financial position before a deal. It tests the quality of earnings (the profit the business will keep making), net debt and debt-like items, and normal working capital, so the price reflects sustainable performance. It differs from an audit, which checks that past accounts are fairly stated; due diligence asks what the numbers mean for the price.
The moments this work is for.
Buying a company
You have agreed a price in principle. You want to know the earnings behind it are real before you commit.
Selling, with a buyer’s team coming
Vendor due diligence lets you find the questions first and answer them on your terms.
Investing or lending
Your investment committee or credit team wants an independent view of earnings and cash before it signs.
The work, and what it delivers.
- Quality of earningsReported profit adjusted to the sustainable earnings a buyer should pay for.
- Net debt and debt-like itemsEverything that should reduce the price from enterprise value to equity value.
- Working capitalA normal level of working capital, and the peg for the completion mechanism.
- Findings tied to the priceEach finding mapped to price, warranties, indemnities or conditions.
- A signed reportA clear report your board, lenders and co-investors can rely on.
Four steps, one adviser.
- ScopeAgree the questions that matter most for this deal.
- Data roomReview the accounts, management information and contracts.
- Management sessionsTest the numbers with the people who run the business.
- Report and negotiateFindings tied to price and terms, with support in negotiation.
A named signature behind every number.
An audit tells you the accounts are fairly stated. Due diligence tells you what the business will earn after you own it. I lead the work and sign the report.
Siong Yoong
About VALLARIS™ →
Standing you can check. Each line names the body behind it.
Chartered Valuer and Appraiser
CVA, Institute of Valuers and Appraisers, Singapore (IVAS).
Fellow, Asia Pacific Institute of Experts
FAPIEx. Admission requires prior oral expert evidence in court or arbitration.
Registered Management Consultant
RMC-10272, SS 680–certified, with financial due diligence among his registered domains.
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Thirty minutes, confidential, and no fee for the first conversation.
What clients ask about financial due diligence.
What is financial due diligence?
Financial due diligence is an independent review of a target’s earnings, cash, debt and working capital before a deal, so the buyer pays for sustainable performance. The findings feed directly into the price and the sale and purchase agreement.
How is due diligence different from an audit?
An audit gives an opinion on whether past financial statements are fairly presented. Due diligence looks forward: it adjusts earnings to what the business will keep making, identifies debt-like items and sets normal working capital, all for the purpose of the price.
What is a quality of earnings review?
A quality of earnings review adjusts reported profit, usually EBITDA, for one-off, non-recurring and non-arm’s-length items, to show the sustainable earnings a valuation should be based on.
How long does financial due diligence take?
Usually three to six weeks for a mid-market target, depending mostly on how complete the data room is and how quickly management can answer questions.
What is vendor due diligence?
Vendor due diligence is commissioned by the seller before the sale. It gives buyers a common, independent starting point, shortens the process and lets the seller address findings before they affect the price.
Who relies on the report?
The buyer’s board and investment committee, lenders and co-investors. With a vendor report, buyers may also rely on it under a reliance letter.
Often needed together.
M&A advisory
M&A advisory is the work of buying, selling or merging a company: finding the right counterparty, setting the price, testing the numbers through due diligence and negotiating the terms to completion.
Business valuation
A business valuation sets what a company is worth, on a stated basis of value and at a stated date.
Forensic accounting
Forensic accounting applies accounting and investigation to a legal question: tracing funds, testing transactions, reconstructing accounts and measuring loss, to a standard that stands up in court or arbitration.