Financial Due Diligence Work Streams
Quality of Earnings
The quality of earnings workstream concerns identifying the underlying/normalised/adjusted EBITDA generated by the target in the most recent financial periods. This will allow the client to further understand the earnings potential of the target and underlying growth rates.
Net Debt
The net debt workstream concerns identifying the value of net debt that should be deducted from enterprise value in the equity bridge. FDD will involve identifying and quantifying any other debt-like (or cash-like) items that are not recorded within reported net debt but should be considered from a deal-value perspective. Examples of items that are debt-like are;
interest accrued on external debt;
rent-free period accruals (determined by the treatment of rental costs in the quality of earnings analysis); and
debt break costs.
Net Working Capital
The net working capital workstream concerns the identification of: i) delivered net working capital; and ii) the adjusted net working capital benchmark (often referred to as the “NWC peg”). FDD providers will be required to identify and quantify any required adjustments to both delivered net working capital and the net working capital benchmark.
Other workstreams
Other workstreams typically include:
Historical trading analysis;
Customer analysis;
Product/service line analysis;
Outturn/forecast review; and
Cash flow and capex analysis.
All you need to know
The below information pack (60+ page document with accompanying example Excel databook) will benefit any individual looking into a potential move into the financial due diligence profession (often referred to as transaction services or transaction advisory services in the market). The information pack will prove useful for potential interview questions or even simply establishing a general understanding of the typical financial due diligence thought-process.
The pack will also be beneficial for any already successful FDD candidate who is looking to acquire a strong technical understanding in order to hit the ground running.
FDD Interview Preparation Pack and Example Excel Databook
Complete FDD (Transaction Services) interview preparation pack (60+ page document + example Excel databook). Insights into the FDD process and detailed technical examples covering all three key FDD workstreams: Quality of Earnings, Net Debt and Net Working Capital.
Candidate feedback on the interview preparation pack:
“I have passed my interview as a consultant in corporate finance. I was asked to prepare the "clean" EBITDA and Working capital. The information pack helped me a lot!” - H Yue, May 2023
“Informative and to the point, gave me the confidence I needed.” - Harkirat K, November 2022
I was able to secure 2 full time offers from my interviews for TAS roles while reviewing the course pack. Most of the recruiters / managers interviewed with were impressed that I had a baseline understanding of FDD coming from an audit background at a big 4" - Jose V, August 2022