What does Financial Due Diligence look like when you are selling a company? How sellers and their advisers use FDD to control the process and protect value.
Financial Due Diligence is often discussed from the buyer's perspective — but sellers and their advisers use FDD equally strategically. Understanding the sell-side FDD dynamic is important for any TS analyst who will work on vendor due diligence mandates.
Sellers initiate their own financial diligence for several reasons:
Before going to market, sellers typically:
During the sale process, the seller's financial adviser (investment bank) and the VDD provider work together to:
Sellers want to maximise adjusted EBITDA. A good sell-side FDD adviser identifies all legitimate add-backs, documents them thoroughly, and presents them in a way that is difficult for buy-side teams to reject.
Sellers prefer a lower NWC target (they need to deliver less NWC at closing, increasing cash proceeds). The sell-side FDD team will argue for the lowest defensible target.
Sellers prefer a narrower definition of net debt (fewer items included = higher equity value). Debt-like items will be contested.
Sophisticated buyers' FDD teams will find these. Disclosing them in the VDD with a clear explanation is always better than having them discovered.
The sell-side FDD perspective is a distinct and important skill set for TS professionals. Analysts who can think from both buyer and seller angles are more versatile and more valuable to deal teams.
The Transaction Services Interview Programme (€119.99, one-time) covers both buy-side and sell-side FDD dynamics with dedicated case studies and scenarios. Enrol today.
Hundreds of candidates prepared their interviews with this programme. Those who landed the role have one thing in common: they worked the cases before walking into the room.
