What is a financial due diligence?

• A due diligence is necessitated in any transaction when the buyer/ investor desires to validate the accounting and financial information of the seller/ investee company. The buyer usually values the company based on historical profitability or the asset value of the seller. Hence, the buyer would want a validation of the ‘true’ profitability of seller and ensure that there are no hidden surprises in the financial and accounting matters of the seller.

• Acumen specialises in conducting accounting and financial due diligences on the seller’s financial statements on behalf of the buyer/ investor.

Our approach

• Understanding the key objectives behind the transaction: What is the rationale of the buyer in acquiring or investing in seller’s business? What are the critical factors influencing the valuation of the seller?

• Understand the seller’s business: A detailed understanding of the seller’s business within the available timeline, helps us in determining the key characteristics of the business and accordingly focus on the key areas.

• Validate the quality of earnings and assets (QoE and QoA): A company typically gets valued at a multiple of its historical earnings. It is critical to validate the quality of earnings to ensure that profitability is not vitiated by one-off income or expenses, incorrect revenue recognition/ expense provisioning or inventory accounting. Similarly, on the asset front focus is on long outstanding assets and unrecorded liabilities.

• Identify and highlight key deal issues: Having understood the important factors driving the transaction and the value, we lay special emphasis in validating such factors from all aspects. Issues identified, if any are discussed with the seller to understand their point of view and incorporate seller’s clarification, if any.

• Detailed report and data pack: Depending on the scope of work, our report provides a detailed analysis of sellers’ business: revenue streams, customer concentration, key costs, margins and analysis on the recoverability of assets. We also analyse and report off-balance sheet items and contingent liabilities.