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.