Buy-Side Financial and Accounting Due Diligence
Using a highly analytical and unique approach to due diligence, we uncover the realities of a business and make it easier for you to do the right deals, avoid making bad purchase decisions, and preserve value post-close. Our buy-side due diligence approach focuses on:
- Assessing the quality of earnings
- Evaluating accounting policies and consistent application of Generally Accepted Accounting Principles (GAAP)
- Analyzing key business drivers, profitability trends and concentrations of risk (e.g., by SKU, by product, by product line/division, by customer, etc.)
- Analyzing cash flows (e.g., working capital, capital expenditures, etc.)
- Assessing on and off balance sheet assets and liabilities
- Evaluating projections relative to historical performance and plan
- Reading independent auditor workpapers
- Advising on the purchase and sale agreement, including working capital mechanisms and pegs
- Performing “carve-out” due diligence
- Assessing post-close adjustments and other purchase price mechanisms
- Performing tax due diligence and structuring
Acquiring a Business Unit or Product Line
Financial information presented as part of a “carve-out” is often not subjected to the same level of scrutiny as corporate data prepared for investors, lenders, and other constituents and may not be in accordance with GAAP. Performing a detailed analysis of trial balance level accounting information is necessary to understand the true operating performance of the business being purchased. You need to understand the carved-out entity’s dependencies on the parent company that has undertaken the divestiture. In addition, you may not have the infrastructure to replace what the parent company previously provided, requiring additional investment from you. Key areas of focus include:
- Removing corporate cost allocations to the extent they do not reflect stand-alone costs
- Estimating stand-alone costs and understanding shared services
- Understanding intra-company transactions, including receivables and payables
- Eliminating nonrecurring or unusual items in the carve-out financials to normalize business unit financials
- Analyzing trend of working capital required by the carve-out business unit in order to develop a target working capital amount and mechanism in the purchase and sale agreement
- Evaluating infrastructure needs and one-time cost requirements
- Assessing adequacy of transition services agreement
- Conducting synergy analysis for add-on acquisitions
- Developing Day One and Day 90 objectives
