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Introduction to Financial Due Diligence
Financial due diligence is one of the most important aspects of M&A DD. It is more than just investigating financial records. It also involves examining the underlying profit, what contributes to it and how the target company’s future looks. The M&A FDD team will spend much time assessing the target company. Hence, their knowledge could also be utilised to gain an in-depth understanding of the overall commercial aspects of the target, not just their financials. The main objectives of M&A Financial Due Diligence are the following.
- Precise examination of the assets and liabilities of the target company, which will later be used in the upcoming negotiation stages. It may lower the purchase price depending on the due diligence result.
- Items related to the income statement. If the due diligence team identifies factors that may adversely affect the target company’s future performance, that will also affect the purchase price adjustment.