Financial Due Diligence
What is this?
Financial Due Diligence (FDD) is a comprehensive assessment process conducted by independent financial experts to evaluate the financial health, performance and risks associated with a business or investment opportunity, typically spanning the last three financial years. This process involves a detailed review of financial statements, accounting records, internal controls and other financial data to identify potential issues. Typical parts of an FDD are sales and cost breakdown, NWC analysis, net debt analysis, etc.
When would you need it?
Financial Due Diligence is essential for investors, acquirers, lenders, and other stakeholders involved in business transactions or investment decisions. Here are some scenarios where Financial Due Diligence becomes crucial:
1
FDD
in M&A:
Your company is considering acquiring another business. A buy-side FDD helps you assess the target company's financial performance, liabilities and risks to evaluate the potential synergies and integration challenges.
2
Investment
Analysis:
You are an investor evaluating potential investment opportunities in private companies or startups. A buy-side FDD provides insights into the target company's financial position and growth prospects, helping you make informed investment decisions and mitigate risks.
3
Vendor Due
Diligence:
Your company is preparing to sell a business or divest a division. Conducting a sell-side FDD helps identify potential issues, address weaknesses and enhance the company's financial presentation to attract potential buyers and maximize valuation.