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What is M&A Due Diligence and how Fintalent can help you hire the best M&A Due Diligence Consultants

M&A due diligence aims to identify any potential risks associated with the acquisition so that they can be mitigated or avoided. The process is usually described as comprising five steps: understand the business, data collection and preparation, deal analysis and negotiation support, transaction coordination and closing support, integration planning. These are often carried out by specialized teams within an organization that works on acquisitions targeting related businesses known as “running dogs”.

Regardless of the sort of due diligence to be carried out, M&A Due Diligence is a long and arduous process that requires painstaking attention to detail in order to arrive at the best decisions at all times. Fintalent, the hiring and collaborative platform for tier-1 Strategy and M&A professionals is the go-to platform to hire the best freelance M&A Due Diligence Consultants. Fintalent, an invite-only platform has M&A due diligence consultants that are highly skilled and experienced and made available for hiring managers all across the world.

Financial Due Diligence and M&A Due Diligence

Financial due diligence is the act of scrutinizing the books of a company to assess its financial stability. It can be carried out by shareholders (shareholders’ due diligence) or third parties (merchant bankers, investment banks, accountants). Presently, there is a lack of consensus on what constitutes financial due diligence: the American Institute of Certified Public Accountants (AICPA) and the International Federation of Accountants (IFAC) define it as assessment of the quality and accuracy of financial information, while the International Valuation Standards Council (IVSC) states that it is an instrument for measuring the value of assets.

The Financial Industry Regulatory Authority (FINRA) requires any broker or banker involved in mergers and acquisitions that involves financial reporting to use appropriate procedures and expert judgment to assess whether target company financial statements are complete and accurate. The standards also require the completion of a financial statement analysis and reliance on the work of employees who have been specifically designated to perform due diligence tasks.

The audit committee should determine whether the company to be acquired has adequate accounting controls and whether the company’s auditors and internal auditors (or other persons responsible for auditing or certifying financial statements) have conducted, or can conduct, their work in an independent manner. The audit committee must consider the due diligence procedures performed by the company’s management and its outside advisors; whether any deficiencies were identified; and if such deficiencies were reported to such persons. (FASB AS No. 159)

An M&A deal is said to be financially scrutinised if the buyer has done some kind of assessment of the target company. A thorough financial due diligence process must be completed before the seller grants any exclusivity on the deal. This can be done through two methods: direct or indirect. A direct method would involve the buyer’s team traveling to the target company’s site and collecting data or if a data room is used, obtaining it electronically. An indirect method would involve the buyer hiring financial advisors to collect and compile this data for them.

Steps to Conduct an M&A Financial Due Diligence

Understanding the business of the target company is usually one of the most important aspects of a M&A deal. It provides an understanding of where the company stands today, what they are doing to achieve their current state, what gaps there are in their business that may hurt them in future and most importantly, how these gaps could be filled by the buyer.

The company’s strategy will play a significant role in formulating an approach towards completing its objectives. A parent-subsidiary relationship is common in M&A deals, so this would allow for further support. Understanding the business may involve data collection through field visits, interviews with key personnel, meeting customers, suppliers and competitors.

The process of collecting relevant data to prepare for analysis must be based on the requirements set out by the buyer. If this is not done, relevant information pertaining to the target company may not be gathered. The data collected must be reliable because it will play a significant role in assessing the risks associated with completing an acquisition. The following are some of the common types of data collected during this phase:

Data should be extracted using different formats so that it can be understandable by financial advisors without any issues. This is why some data are specific to their financial records or are updated versions of previous versions. For example, the more recent financial statements of a company will be updated to incorporate changes in accounting guidelines, while others may include certain key information required for valuations.

The preparation of the financial statement analysis involves multiple steps that should follow a predetermined formula or method to ensure consistency. This involves accounting for any notes and disclosures, including those relating to significant account balances, sales and expenses, additional information needed for historical comparative purposes and information about the target company’s subsidiaries that are not used in pricing its stock. It would also involve identifying issues that are likely to affect the company’s future performance, meaning it is worth evaluating further. This assessment should be done in the context of the historical performance of the company, any previous acquisitions and how these changes would affect future performance.

The financial statement analysis will be used to have a clear picture of the company’s historical performance. This will be done by comparing individual business segments, especially operating segments, with other companies in the same industry. It is also important to compare the company’s performance over different periods due to factors that may affect their long-term performance, including significant changes in their operations, new equipment or facilities being implemented or new products being introduced.

This process requires the collection of relevant information on events related to specific transactions previously conducted by a business. Any transaction with an entity outside of the company directly involved in M&A deals should be assessed further. This is usually done by comparing the transaction to similar ones conducted by the company.

The preparation of reconciliation of accounting data involves making sure that financial information obtained is consistent with the data used in preparing its income statement analysis. This could involve adjustments to allow for differences in accounting standards, tax rates or timing of cash receipts and expenditures. It may also involve adjusting for assets and liabilities arising from changes in facts and circumstances, including secured loans, contingent liabilities, account payables and other receivables.

This process involves identifying any unusual transactions that could affect the company’s historical performance which are normally associated with working capital effects or business combinations.

The preparation of cash flow statement analysis involves making sure that financial data obtained is consistent with the data used in preparing its income statement analysis. The analysis of cash flow shows how much money is available to pay off debt, pay interest and other expenses, cover short-term obligations and invest in future growth.

This process involves identifying any unusual transactions that could affect the company’s historical performance which are normally associated with working capital effects or business combinations. The analysis of cash flow shows how much money is available to pay off debt, pay interest and other expenses, cover short-term obligations and invest in future growth. This will also consider possible investments involving the acquisition of assets outside the company’s existing operations.

Often, research carried out for this phase will provide interesting information that requires further review to determine its implications. For example, the sale of a business division or a business unit could mean that it is time to change the company’s operating strategy. The same applies if a competitor has recently been acquired by another company. The buyer may have to carry out further analysis to determine how the acquisition would affect its own position in the industry.

It is also necessary to look at whether these acquisitions could affect a target company’s performance or outlook, especially those companies that have been losing market share because of takeover bids made by competitors. It is also necessary to consider whether the business being acquired could have an impact on the buyer’s reputation. In some cases, it appears that a rival may have been looking for ways to access a company’s client base. This would mean that client loyalty is being considered as a factor in the transaction.

4 Important Analysis for an M&A Due Diligence Report

VALUE ANALYSIS

The term “value analysis” refers to a process that is designed to estimate how much a particular company or business unit should be worth. It involves looking at how much similar investments have raised in sales and dividend payouts, along with making adjustments for growth and inflation. In this context, it examines the growth potential of a company over a specific period.

The preparation of value analysis involves setting criteria for determining what adjustments should be made to the company’s historical performance to reach a fair trade price. The first step is to identify how earnings growth rates have been determined, including making adjustments for inflation and other factors that may affect financial performance. The next step is to decide on the time period over which growth rate changes should be used. In some cases, this would involve comparing companies’ current market value with their book value as well as their net present value (NPV). For deals involving companies in the same industry, it is important to decide on the value of growth rates developed through financial forecasting models.

The next step is to decide on how the company’s earnings growth rate should be applied to determine its value. This involves making adjustments for inflation and other factors that may affect financial performance. It is also important to confirm whether any nonrecurring events should be adjusted for, given that their effects are not part of the company’s long-term growth estimates. For example, this would involve deducing how much of the earnings growth rate has been due to an acquisition or divestment.

This process involves identifying what adjustments to the book values of assets and liabilities need to be made to arrive at a fair trade price. It includes deducing how much the company’s sales growth has been due to an acquisition or divestment. This will also consider how much of the profit growth results from nonrecurring events.

This is done by taking into account the riskiness of the business under consideration, for which factors like liquidity needs to be taken into account, as well as what protection is provided by measures that are in place.

APPRAISAL REPORT

The appraisal report or valuation report is designed to indicate how much money can be made by selling a particular company. The process involves comparing the company’s book values with its market values. The report will include an analysis of how the company’s current share price is different from its intrinsic value. It will also include reasons why the share price may be higher or lower than the intrinsic value, including any unusual factors that could affect performance. This involves describing how to use financial forecasting models to determine whether the estimate of future earnings would seem high or low compared with other companies in the same industry.

CONFIRMATION BUDGET

The confirmation budget is used to estimate how much money can be made by selling a particular company. It involves comparing the company’s book values with its market values and forecasting future revenues and profits, as well as considering what type of buyer might be interested in acquiring it. The confirmation budget involves preparing a budget that uses financial forecasting models and DCF valuations to estimate the value ofthe company. It also involves identifying the relevant risk factors that may affect financial performance and any nonrecurring events that should be adjusted for, given that their effects are not part of the company’s long-term growth estimates.

PROFIT AND LOSS ACCOUNT

A profit and loss account indicates whether a company has made a profit or loss in a particular period. Mergers and acquisitions involve estimating how much each business will contribute to overall revenue and profit. For example, a company that buys a company with a strong patent position may attempt to buy it as cheaply as possible. In this case, the price paid is likely to be lower than what it would have been if the two companies had remained separate.

In order for a merger or acquisition to be financially beneficial, certain factors need to be taken into account. These include the expected level of competitive pricing pressures and how much the acquisition will expand or diversify a company’s product offering. They also involve making judgments about which business units have an opportunity for future growth and adjusting expectations based on those factors. This involves estimating the impact of past acquisitions on operations by identifying complementary activities and identifying any new risks.

CONSENT TO AN EXCHANGE OFFER

To complete an acquisition, a buyer needs the approval of the target company’s board. Approval is usually given or withdrawn depending on how attractive the offer or on whether one of the conditions of the offer has been met. Consent involves finding out what factors are influencing the company’s board of directors, as well as identifying important considerations that need to be taken into account when deciding whether to make an offer.

Why you need Fintalent’s M&A Due Diligence Consultants

A merger and acquisition (M&A) analyst uses financial information to evaluate how well a particular company will perform in the future. The information provided by management and other key stakeholders is evaluated and compared with other companies in order to determine whether it’s undervalued or overvalued. Strategies for making acquisitions and disposing of businesses involve researching previous transactions and comparing them to the company’s book values and its sales forecasts. The analyst also helps management to communicate with investors by doing financial analysis and forecasting.

From the foregoing, it can be deduced that for a good M&A Due Diligence to be carried out, an M&A Due Diligence consultant would need to be knowledgeable not just in M&A analysis but also in complementary areas of knowledge like Research and Data Analysis. Fintalent’s M&A Due Diligence Consultants carry out lots of separate responsibilities across the platform including Research, Data Analysis, M&A Consulting as well as Due Diligence Consulting and are therefore expertly knowledgeable in the areas surrounding carrying out a proper M&A due diligence. Businesses would therefore benefit from hiring M&A Due Diligence Experts from the platform.

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Frequently asked questions

Most frequent questions and answers

What clients usually engage your M&A due diligence Consultants?

We work with clients from all over the world. Our clients range from enterprise and corporate clients to companies that are backed by Private Equity or Venture Capital funds. Furthermore, we work directly with Family Offices, Private Equity firms, and Asset Managers. Most of our enterprise clients have dedicated Corporate Development, M&A, and Strategy divisions which are utilizing our pool of M&A due diligence talent to add on-demand and flexible resources, expertise, or staff to their in-house team.

How is Fintalent different?

Fintalent is not a staffing agency. We are a community of best-in-class M&A due diligence professionals, highly specialized within their domains. We have streamlined the process of engaging the best M&A due diligence talent and are able to provide clients with M&A due diligence professionals within 48 hours of first engaging them. We believe that our platform provides more value for Corporates, Ventures, Private Equity and Venture Capital firms, and Family Offices.

Our Hiring Process – What do ‘Community-Approach’ and ‘Invite-to-Apply’ mean?

‘Invite-to-Apply’ is the process by which we shortlist candidates for the majority of projects on our platform. Often, due to the confidential nature of our clients’ projects, we do not release projects to our whole platform but using the matching technology and expertise of our internal team we select candidates who are the best fit for our clients’ needs. This approach also ensures engagement with our community of professionals on the Fintalent platform, and is a benefit both to our clients and independent professionals, as our freelancers have direct access to the roles best suited to their skills and are more likely to take an interest in a project if they have been sought out directly. In addition, if a member of our community is unavailable for a project but knows someone whose skill set perfectly fits the brief, they are able to invite them to apply for the role, utilizing the personal networks of each talent on our platform.

Which skills and expertise do your Fintalents have?

The Fintalents are hand-picked and vetted M&A due diligence professionals, speak over 55 languages, and have professional experience in all geographical markets. Our M&A due diligence consultants’ experience ranges from 3+ years as analysts at top investment banks and Strategy consultancies, to later career C-level executives. The average working experience is 6.9 years and 80% of all Fintalents range from 3-12 years into their careers.

Our M&A due diligence consultants have experience in leading firms as well as interfacing with clients and wider corporate structures and management. What makes our M&A due diligence talent pool stand out is the fact that they have technical backgrounds in over 2,900 industries.

How does the screening and onboarding of your M&A due diligence talent work?

Fintalent.io is an invite-only platform and we believe in the power of referrals and a closed-loop community. Members of our community are able to invite a small number of professionals onto the platform. In addition, our team actively scouts for the best talent who have experience in investment banking or have worked at a global top management consultancy. All of our community-referred talent and scouted talent are subject to a rigorous screening process. As such, over the last 18 months totaling more than 750 hours of onboarding calls, of which only 40% have received an invite-link after the call.

What happens if I am not satisfied with my M&A due diligence consultant’s work?

During your initial engagement with a member of our Fintalent talent pool with no risk. If you are not satisfied with the quality of your hire for any reason then we are able to find a replacement at short notice. There is no minimum commitment per project, but generally projects last at least 5 days and can last 12+ months.

Interested in our invite-only community of tier-1 M&A due diligence experts?

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