Financial Due Diligence

The investor bases their investment project in a company on several assumptions: the intrinsic quality of the asset (clientele, reputation, production capacity, etc.), “normative” profitability, cash flow generation, and levels of cash and financial debt.

Once the parties have reached an agreement (typically after issuing a letter of intent), the investor has a period to conduct in-depth due diligence on the accounting, financial, legal, and commercial information provided by the seller.

Financial Due Diligence involves a detailed analysis of the target company’s historical accounting data and, where applicable, projections to assess its actual performance and financial position.

We perform an in-depth analytical review of the available financial statements. We test the quality of the figures provided by the seller through contextual analysis, consistency checks, interviews with management, and, where applicable, reconciliation with external documents.

Our due diligence typically includes:

• Understanding and assessing the business model
• Evaluating the quality of financial information
• Reviewing historical performance
• Assessing the quality of earnings or determining the normative EBITDA (or EBIT)
• Financial analysis: investments (CAPEX), working capital requirements (WCR), financial debt, and conversion of EBITDA into cash flow
• Determining recent net financial debt
• Critical review of the business plan (optional).

The analysis confirms or, if necessary, adjusts key transaction metrics (normative EBITDA, adjusted net financial debt, generated cash flows). It also identifies risks associated with the transaction, some of which may require specific coverage in the acquisition’s legal documentation (warranty of assets and liabilities). Finally, it highlights potential value creation opportunities (synergies, renegotiations of certain contracts, etc.).