The Phases of a Financial Due Diligence

Understanding the phases of a Financial Due Diligence engagement is essential for any TS interview. Interviewers consistently ask candidates to "walk them through how an FDD works" — and a structured, confident answer demonstrates genuine deal awareness.

Phase 1: Engagement Setup and Scoping

Before fieldwork begins, the TS team agrees on the scope of work with the client:

• Scope definition: What workstreams will the FDD cover? Typically QoE, NWC and net debt are standard. Additional modules may include tax, cash flow, pension review, or sector-specific topics.
• Reporting format: Will the output be a long-form report, a red-flag report, or a data book?
• Timeline: FDD engagements on mid-market deals typically run two to four weeks; larger deals can extend to six to eight weeks.
• Information request list (IRL): The TS team sends a list of required documents to management or the sell-side adviser.

Phase 2: Data Room Access

Once the data room is open, analysts begin downloading and organising financial information:

• Management accounts (monthly, last 3 years)
• Statutory accounts (last 3 years)
• Board packs and management presentations
• Customer and supplier contracts
• Budget and forecasts

Quality of data room organisation varies enormously. In well-run sell-side processes, a data pack is provided. In unstructured buy-side processes, analysts must piece together information from multiple sources.

Phase 3: Analytical Fieldwork

This is the core phase. Analysts build models, identify issues and draft preliminary findings:

• Build the historical P&L (last 3 years + LTM)
• Construct the EBITDA bridge
• Build the NWC history and calculate a proposed target
• Prepare the net debt schedule
• Draft questions for management (the Q&A list)

Phase 4: Management Q&A

The team meets with management — typically the CFO and finance team — to:

• Clarify accounting policies
• Obtain support for EBITDA adjustment claims
• Challenge management add-backs
• Understand any unusual items or red flags

This session often changes the numbers significantly. Good analysts come prepared with targeted, evidence-based questions.

Phase 5: Report Writing

After fieldwork, the team drafts the FDD report. Structure typically includes:

• Executive summary / key findings
• QoE section (EBITDA bridge and commentary)
• NWC section
• Net debt section
• Financial position overview
• Appendices (detailed schedules)

Multiple rounds of internal review occur before the report is sent to the client.

Phase 6: Client Interaction and Final Delivery

The draft report is shared with the client (e.g. the PE fund or corporate acquirer) who may:

• Ask follow-up questions
• Request additional analysis on specific items
• Share findings with the seller to negotiate price adjustments

The final report, once agreed, forms part of the deal documentation and may be relied upon in the SPA or W&I insurance application.

Conclusion

Knowing the FDD phases in sequence — from scoping to final delivery — allows you to speak fluently about the process in interviews and to understand where your analytical work sits in the broader deal context.

The Transaction Services Interview Programme (€119.99, one-time) takes you through each FDD phase with worked examples, a real data pack and a complete case study report. Enrol today.