Validate financial performance and uncover hidden risks before closing.
Al Banyan Tree provides Financial Due Diligence services for M&A transactions, private equity investments, and strategic acquisitions, helping clients test earnings quality, assess working capital, and make informed investment decisions.
Al Banyan Tree provides Financial Due Diligence services for M&A transactions, private equity investments, and strategic acquisitions, helping clients test earnings quality, assess working capital, and make informed investment decisions.
Use Financial Due Diligence to test earnings quality and deal risk
Our Financial Due Diligence service is built to identify what the target really earns, how much cash the business needs, and which issues may change price, structure, or financing. We conduct a comprehensive financial review across the income statement, balance sheet, cash conversion, and indebtedness profile, supported by a structured due diligence process, red flag reporting, and results.
Quality of Earnings analysis sits at the center of the work. It assesses whether reported EBITDA is sustainable, recurring, and supported by the real economics of the business. We review one-off items, accounting policy distortions, non-recurring gains or expenses, owner-related adjustments, timing effects, and pro forma considerations to derive adjusted EBITDA. This normalized view is essential because headline earnings often overstate the base used for valuation and debt capacity.
Working capital analysis is equally critical. Deals are often negotiated on a cash-free, debt-free basis, which means Net Working Capital targets can shift value between buyer and seller at completion. We analyze historical trends, seasonality, normal operating needs, and deal-specific distortions to estimate a working capital peg. We also review Net Financial Debt or indebtedness, including debt-like items, contingent obligations, accrued liabilities, and other claims that may not be obvious from a surface review.
The work is most useful when linked with broader deal logic. We coordinate with Commercial and Operational Due Diligence where necessary, test whether the deal hypothesis is financially consistent, and assess how earnings, cash conversion, and balance sheet structure support or weaken the investment case. For buy-side and sell-side transactions, vendor assistance, and vendor diligence, we help create a common fact base that can stand up in virtual data rooms, management discussions, and lender review.
A strong FDD report should identify key value drivers, show the bridge from reported to adjusted earnings, highlight red flags, explain working capital and debt findings, and point to implications for purchase agreement review, earnout calculations, and transaction negotiations. We also use digital tools and AI where relevant to improve consistency and evidence gathering, while keeping conclusions grounded in judgment.
Quality of Earnings analysis sits at the center of the work. It assesses whether reported EBITDA is sustainable, recurring, and supported by the real economics of the business. We review one-off items, accounting policy distortions, non-recurring gains or expenses, owner-related adjustments, timing effects, and pro forma considerations to derive adjusted EBITDA. This normalized view is essential because headline earnings often overstate the base used for valuation and debt capacity.
Working capital analysis is equally critical. Deals are often negotiated on a cash-free, debt-free basis, which means Net Working Capital targets can shift value between buyer and seller at completion. We analyze historical trends, seasonality, normal operating needs, and deal-specific distortions to estimate a working capital peg. We also review Net Financial Debt or indebtedness, including debt-like items, contingent obligations, accrued liabilities, and other claims that may not be obvious from a surface review.
The work is most useful when linked with broader deal logic. We coordinate with Commercial and Operational Due Diligence where necessary, test whether the deal hypothesis is financially consistent, and assess how earnings, cash conversion, and balance sheet structure support or weaken the investment case. For buy-side and sell-side transactions, vendor assistance, and vendor diligence, we help create a common fact base that can stand up in virtual data rooms, management discussions, and lender review.
A strong FDD report should identify key value drivers, show the bridge from reported to adjusted earnings, highlight red flags, explain working capital and debt findings, and point to implications for purchase agreement review, earnout calculations, and transaction negotiations. We also use digital tools and AI where relevant to improve consistency and evidence gathering, while keeping conclusions grounded in judgment.
Our Financial Due Diligence Process
We follow a structured, decision-oriented process:
- Phase 1: Scoping and risk framingDefine diligence objectives, key financial questions, and transaction priorities based on deal thesis and timeline.
- Phase 2: Financial analysis and testingReview revenue quality, margin drivers, cash conversion, accounting policies, and indebtedness to assess reliability of reported performance.
- Phase 3: Normalization and risk quantificationBuild the bridge from reported to adjusted EBITDA, quantify working capital and debt-like items, and identify red flags that may affect price or structure.
- Phase 4: Decision support and execution readinessTranslate findings into negotiation priorities, valuation implications, and practical actions for signing, completion, and post-close execution.
Service Highlights
- Identify key value drivers: separate core performance from noise.
- Analyze historical financial data: review trends in revenue, margins, and cash.
- Assess sustainable earning power: test the durability of reported results.
- Normalize EBITDA: adjust for one-offs and non-recurring items.
- Analyze working capital trends: estimate normal operating needs.
- Identify deal breakers and risks: flag issues that affect value or certainty.
- Uncover hidden costs: surface debt-like and contingent items.
- Review accounting policies: test policy choices and comparability.
- Support transaction negotiations: convert findings into price and term leverage.
- Test the deal hypothesis: align financial findings with the investment case.
Reporting Format and Deliverables
Our reporting is designed for investment committees, deal teams, and lenders:
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Executive summary with key findings and material red flags - Quality of Earnings bridge (reported to adjusted EBITDA)
- Working capital analysis with normal operating level and peg implications
- Net debt / debt-like items and contingent liability review
- Financial risk matrix with quantified impact ranges
- Valuation and deal-structure implications for negotiation
- Decision-ready pack for management, board, and lender discussions
Business Benefits
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Reduce transaction risk through evidence-based financial analysis
1 -
Improve valuation accuracy with normalized earnings insights
2 -
Strengthen negotiation position with quantified findings
3 -
Minimize post-deal surprises across cash, debt, and working capital
4 -
Increase confidence for investment committees and lenders
5 -
Support faster, more disciplined deal execution
6
FAQ
The main objective is to test earnings quality, cash conversion, and balance sheet risks so decision-makers can assess true value and transaction risk before signing.
It identifies adjustments to EBITDA, working capital, and debt-like items that directly influence valuation, pricing logic, and negotiation priorities.
A strong report includes adjusted earnings analysis, working capital findings, indebtedness review, red flags, and clear implications for valuation, deal structure, and execution.