Due diligence

Due diligence is a structured business review process that provides a comprehensive and in-depth assessment of a company's operations, financial position, and associated risks. Depending on the client's needs, due diligence may include financial, tax, legal, commercial, technical, and sustainability analyses.

Due diligence is an integral part of the mergers and acquisitions (M&A) process, providing investors with a well-founded understanding of the target company's financial position, operating performance, and transaction-related risks. The risks identified during the process, together with our recommendations, serve as an important basis for determining the purchase price, structuring the transaction, defining representations, warranties and conditions in the purchase agreement, as well as allocating responsibilities between the parties.

At the same time, due diligence is often performed on behalf of sellers or existing business owners. In such cases, its purpose is to identify and address weaknesses in the company's operations and accounting processes before a sale, mitigate potential risks, and improve financial management, transparency, and operational efficiency—even where no sale of the business is currently planned.

As part of our Financial Due Diligence services, we perform an in-depth analysis of the company's financial and management accounting information, review supporting documentation, evaluate financial and tax reports, and carry out various cross-checks. The objective is to obtain comprehensive and reliable information regarding the company's financial position; the amount, quality, and trends of its revenue and expenses; the value and quality of its assets and liabilities; adjusted or "true" business EBITDA; Net Working Capital (NWC); Net Debt (ND); the company's operating model; and the key drivers and constraints affecting growth and operational efficiency.

The scope of Financial Due Diligence is tailored to the specific transaction, the size and industry of the company, and the client's requirements. It may involve either a comprehensive assessment of the business or focus on specific areas, including:

• Quality of Earnings (QoE) analysis – assessment of the sustainability, validity, and seasonality of revenue; analysis of customer concentration and retention; evaluation of the cost structure and cost trends; identification of one-off, non-recurring, and non-operating income and expenses to determine adjusted ("true") business EBITDA.
• Historical sales performance analysis – assessment of revenue composition and customer portfolio; analysis of changes in revenue and profit margins both overall and by key customers, products, or business segments; and evaluation of performance trends over time.
• Net Working Capital (NWC) and Net Debt (ND) analysis – review of the amount, composition, quality, and trends of current assets and current liabilities; assessment of borrowings, cash balances, and other Net Debt components, including related agreements; and calculation of adjusted ("true") NWC and ND.
• Assessment of financial reporting and management accounting quality – evaluation of the finance function, internal control environment, financial reporting and budgeting processes, and other aspects of financial management.

By combining Financial Due Diligence with legal, tax, and, where required, commercial and technical due diligence, we provide clients with a comprehensive understanding of the company's current position, future prospects, strengths and weaknesses, as well as the risks associated with both its operations and the proposed transaction.