In today’s financial climate, there is a premium on robust financial analysis when carrying out business deals – error margins are thinner and investors and lenders do not look lightly upon poor decision-making and execution. Under these circumstances, financial due diligence and timely professional advice enhance the quality of decisions buyers and sellers must take.
We offer financial due diligence services – both from a buy side financial and a vendor due diligence perspective – to help you realise the results you and your stakeholders desire. We do so with a forward-thinking approach to deal planning, execution and integration.
The concept of our financial due diligence process is a detailed and systematic analysis of data from the target company in order to obtain an overall picture of the company in connection with the corporate deal. In particular, we put an emphasis on identification and assessment of risks and opportunities when looking at assets, liabilities, financial position and results of the target company.
Turn to us for deal advice on managing risks, taking advantage of opportunities and achieving your desired business results.
This service involves an investigative analysis of a business, assessing the key issues facing the business and the drivers behind maintainable profits and cash flows, identifying the key financial risks and potential deal breakers of the transaction.
Our approach aims to identify the value created by the transaction, including analysis of:
- Actual earnings (identification of one-off events and sustainable earnings);
- Financial projections;
- Cash flow generators;
- Capital expenditure;
- Working capital;
- Management information, system and controls environments;
- Employment issues;
- Commitments and contingent liabilities that might endanger financial performance or otherwise adversely affect the target's financial position after the transaction.
Our work may relate to an acquisition of the shares in a company or its assets (or a group of assets) as well as the organised part of the enterprise. We conduct our projects in close cooperation with our clients and the investor’s other advisers, which enables us to achieve complete understanding of investors’ expectations and provide high-quality deliverables.
Our experience indicates that identified tax risks can have a significant impact on the market value of the target company and might constitute a crucial argument in price negotiation process. The aim of the tax due diligence is the analysis of the target’s tax treatment in respect of its consistency with Lithuanian tax regulations, legislation of the administrative courts and the instructions issued by the Ministry of Finance of the Republic of Lithuania. Our services in respect of tax due diligence include, in particular, analysis of the target’s tax settlements and social security contributions in order to identify tax risks and analysis of decisions concerning historical tax controls undertaken by relevant authorities.
Our divestment services cover a range of activities which can be provided to a vendor in relation to a sale process, including the following:
- Carrying out pre-sale analysis and pre-sale due diligence of the business planned to be disposed as well as carve outs of the parts of the business for sales;
- Assistance in preparation of information memoranda, data rooms and competitive actions, addressing purchaser queries;
- Contract assistance services focusing on the following aspects of the draft sale and purchase agreement: preparation of the accounting, financial and tax terms of the draft sale and purchase agreement (including consideration and scope of warranty and indemnity claims); structure of price adjustment mechanism; mechanics of the closing accounts process and accounting principles for closing accounts; form of any dispute resolution process; advice on an appropriate level of working capital and issues relating to earn out mechanism.
Our services enable, inter alia:
- Strict control over the divestment process;
- Maximum limitation of potential investor interference in the target’s day-to-day business, ensuring the transaction occurs in a time and cost efficient manner within pre-determined timeframes.
At an early stage of the disposal process and based on the vendor’s request we prepare a vendor due diligence report with respect to the target company for potential purchasers which includes an independent analysis and evaluation of the financial, commercial and tax relating issues of the business.
The vendor due diligence report constitutes a credible, independent report suitable for both corporate and financial buyers and considers typical purchasers’ concerns, including opportunities as well as risks and focuses on key value drivers. As our work is in progress we provide continuous feedback to the target’s management on issues identified during vendor due diligence process.
The key VDD benefits for the sell-side are, inter alia:
- Full control over the type and scope of information being disclosed to potential investors;
- An opportunity for more investors to participate in the negotiation process, which should improve the sell–side's bargaining position;
- Appropriately early identification of key issues, which allows the sell–side to adjust its negotiation strategy and eliminate identified risks;
- Time and resources savings – shorter involvement of the target’s financial and accounting personnel; a single due diligence process instead of separate due diligence processes for each investor;
- Time-efficiency leading to faster transaction completion.
We conduct an analysis of the potential target’s market environment and competitive position.
For leading investors, whether financial or strategic, it has become common practice to conduct commercial due diligence to increase confidence in financial projections. In a commercial due diligence engagement, we conduct an analysis of the potential target’s market environment and competitive position.
We customize our work to individual client requirements, focusing on key issues crucial to the investor, for example the review and assessment of assumptions made in budgets and forecasts against market evidence and industry expectations. Furthermore, a commercial due diligence investigation enables the investor to both address potential market risks in the target’s valuation and recognize the target’s unrealized growth potential. Typically, commercial due diligence can address the following issues:
- Market mapping, segmentation and sizing;
- Demand drivers and key purchase criteria;
- Customer base development and customer referencing;
- Market positioning, business performance and sustainability of strategy;
- Industry dynamics and competitor behavior;
- Pricing and margins, including projection sensitivities;
- Revenue and gross margin modelling.
While we work in close collaboration with our clients and management teams, we always give an independent and objective view of our findings. Core to our proposition is that we rapidly build the knowledge available on the business by independent research, as well as our extensive experience of sectors, leveraging both a national and a world-wide network of industry experts. A further differentiator is that we are very focused on the financial impact of our findings and can gain efficiency when working alongside our financial due diligence teams.
Pre-deal evaluation (buy-side)
Buy-side pre-deal evaluation involves initial assessment of a target company to identify key risks and potential deal breakers, using mainly publicly available information. This analysis is relevant to any client, who is interested in acquiring or investing in another entity and would like to obtain initial information on the target prior to deciding on full-scope due diligence.
Our main assistance provided to potential investors under Pre-deal evaluation includes, inter alia:
- Analysis of publicly available information relating to the target;
- Assessment of market and industry attractiveness;
- Consideration of the target's strengths and weaknesses against industry benchmarks;
- Identification of key risks and potential deal breakers;
- Identification of potential market and operational risks and opportunities associated with the target.
Pre-sale due diligence (sell-side)
At the beginning of the disposal process and based on vendor’s request we prepare a due diligence report usually exclusively for internal use by the seller which includes an independent analysis and evaluation of the business planned for disposal.
Our services relate to assistance for the vendors to identify, address and eliminate financial, tax, operational and market risk and irregularities which may be relevant for prospective investors.
The key benefits of pre-sale due diligence include improvement of negotiation position of the sell-side and faster closing of the transaction (mainly through minimizing of the number of issues or irregularities, which otherwise would require explanation to potential investors).
We undertake analysis of the considered transaction taking into account financial, accounting, taxation and commercial, operational, regulatory issues. As a result of this analysis, we make our recommendations regarding the optimisation of the existing transaction structure or the development of an alternative transaction structure. We prepare, in cooperation with other advisers (e.g. tax specialists and lawyers), an integrated summary of the financial, accounting, taxation and legal documents required in order to implement the planned transaction structure. During our engagement we also assist in:
- The identification of potential adverse conditions that might result in a break off in negotiations (deal breakers);
- An evaluation of intragroup cash flows and ability of cash transfer in line with agreed market assumptions (e.g. through dividend payments or intragroup loans);
- The preparation of cash flow statements, which will be the basis for raising the financing needed by the investor for the considered transaction.
Contract and completion procedures assistance
Contract assistance aims to advise on the financial, accounting and tax aspects of the draft sale and purchase agreement related to the target company transaction, including consideration of related risk areas and issues identified based on the previously completed due diligence analyses.
During provision of contract assistance services, we typically focus on the following aspects of the draft sale and purchase agreement:
- Structure of any price adjustment mechanism;
- Warranty and indemnity claims from the accounting and tax perspectives;
- Future plans for add-on acquisitions or divestitures;
- Accounting principles for closing accounts;
- Mechanics of closing accounts process;
- Advice on an appropriate level of normal working capital;
- Definition of primary financial aspects (including inter alia net debt, normal working capital, EBITDA);
- Advice on potential issues relating to earn out mechanism.
Our support to the investors in the transaction completion procedures includes inter alia:
- Advise in respect of accounting procedures during transaction closing;
- Support in the preparation of the completion accounts;
Verification of the completion accounts (prepared by the target company, by the vendor or by the purchaser) with the objective of assisting in determining the appropriate purchase price adjustments based on the transaction sale and purchase agreements.