Are you ready for buyers to scrutinise your business?
When it comes to mergers and acquisitions (M&A), due diligence is the foundation of a successful transaction. Buyers will examine your financials, legal matters, operations, IT, and commercial arrangements in meticulous detail. Any inconsistencies or unaddressed risks can cause delay, erode value or even derail the transaction.
In our experience, preparing early means fewer surprises, a more efficient and competitive process and the best chance to maximise value.
In this Chapter, we focus on financial due diligence, including what it is, why it matters, the scope of review and how sellers can strengthen their position.
What is financial due diligence?
Financial due diligence is a thorough review of a company’s financial health to validate its performance, stability and future prospects. It goes beyond simply validating the numbers – buyers use it to:
• understand the key drivers of historical and future trading performance
• confirm the sustainability of earnings
• understand working capital requirements and cash conversion
• identify and quantify any liabilities.
Why undertake financial due diligence?
The goal is to identify risks, verify assumptions, and avoid surprises that could impact valuation or deal terms.
Put simply, it ensures buyers, investors and lenders can make informed investment decisions.
For sellers, preparing early helps avoid delays, increase competitive tension, and enhance value by presenting a clear, credible growth story.
What does the financial due diligence process look like?
The scope of financial due diligence is tailored to the specific transaction, but typically covers:
• Historical analysis – reviewing past performance to identify growth drivers, momentum, and earnings sustainability.
• Forecast review – assessing future projections, comparing key growth and cash assumptions, and evaluating the level of underpin for forecast results.
• Working capital and cash conversion – analysing operational funding needs and how efficiently profits are converted into cash.
• Cash and debt position – examining the balance sheet to ensure assets and liabilities are understood and any cash and debt like items are identified.
• Tax compliance and risks – checking for accurate filings and potential exposures that could impact the deal.
• Accounting policies, systems and processes – ensuring consistency, reliability, and robustness of financial reporting.
What does it mean for sellers?
Preparation is key to maximising value and minimising risk during a sale. Here are some practical steps to put yourself in the strongest position:
• Start early – begin preparing well before you go to market. Early planning reduces surprises and gives you time to identify and address issues.
• Have a clearly defined growth story – work with your various advisers to articulate a credible, evidence-based growth story.
• Get your financials in order – ensure your financials are accurate, consistent and reconcilable, and are presented in a manner which clearly presents the drivers of growth and profitability.
• Build a robust forecast – support your projections with credible assumptions and evidence. Ensure this has been subject to an appropriate level of review and challenge before being finalised.
• Resource planning – an M&A transaction can be a demanding and time-consuming process. Think about who the key points of contact in your finance team will be and ensure there is sufficient resource to manage the needs of the transaction, whilst maintaining day to day processes.
• Address tax and compliance risks – identify and resolve outstanding issues and tax risks that could affect exit value and timetables. Ensure support is available to maximise the cash value of any tax assets.
• Data insights – have you considered all the sources of data within your business and maximised the insight that can be obtained?
Our approach: Why Hazlewoods Corporate Finance team is ideally positioned to support you
• Senior-led, hands-on teams – our senior professionals are hands-on in every engagement, working closely with you and your other advisers to navigate challenges and enhance value. We know the sale of a business can be a once in a lifetime event for an owner and we are there to support and guide you throughout the process.
• Collaborative and flexible – we understand the demands of running a business during a sales process and the need to work flexibly. Our approach is tailored, responsive, and designed to fit around your priorities.
• Significant experience on both sides of the table – having advised both buyers and sellers, we know exactly what buyers and their advisers will be looking for and can anticipate areas of potential challenge and scrutiny.
• Support in key negotiations – we provide expert input on headline valuation, target working capital definitions, and net cash/debt calculations, supporting you in critical negotiations that influence deal value.
Our goal is simple. To reduce risk, maximise value, and give you confidence at every stage of the process.
Let’s discuss how we can help you get financially ready for your sale.
