The Financial Due Diligence Process: From Kickoff to Report
A complete walkthrough of the Financial Due Diligence process: phases, deliverables, key activities and what happens at each stage of an M&A deal.
Understanding the end-to-end Financial Due Diligence process is a baseline expectation in any Transaction Services interview. Here's a clear walkthrough of what actually happens from engagement to final report.
Phase 1: Engagement and setup (Days -10 to -5)
Before any analysis starts, the administrative and legal framework is put in place:
- NDA signed between the buyer, the seller and the advisory firm.
- Request list issued: the FDD team sends a comprehensive information request to the seller covering financial statements, management accounts, general ledger exports, key contracts, HR data and more.
- Kickoff meeting: the team aligns internally on scope, workstreams, timing and individual responsibilities.
- Data room opened: the seller (or their advisers) grants access to a virtual data room where all documents are hosted.
The quality of the data room and the responsiveness of the seller to the request list can significantly affect the quality of the FDD output.
Phase 2: Data analysis (Days 1-7)
This is where the bulk of the analytical work happens:
- Historical P&L analysis: typically 3-5 years of financial statements broken down into meaningful segments.
- QoE analysis: identification and quantification of EBITDA adjustments.
- Working capital analysis: monthly NWC series, DSO/DPO/DIO trends, seasonality profile.
- Net debt and balance sheet: identification of all financial debt, debt-like items, cash-like items.
- Revenue analysis: customer concentration, recurring vs non-recurring, contract quality.
Management Q&A runs in parallel throughout this phase.
Phase 3: Management meetings and site visits (Days 5-8)
Structured sessions with the target's management team are a critical part of the process:
- The FDD team prepares questions in advance based on data anomalies identified.
- Meetings typically include the CFO, Financial Controller and sometimes operational management.
- Site visits provide context that numbers alone cannot give.
A good FDD analyst uses these sessions not just to get answers, but to assess the quality of management's financial oversight.
Phase 4: Report drafting (Days 8-12)
The FDD report follows a standard structure:
- Executive Summary: key findings, red flags, headline EBITDA bridge and net debt position.
- Revenue and margin analysis: quality of revenues, margin trends, explanations of variances.
- Quality of Earnings: the complete EBITDA bridge with all adjustments and supporting evidence.
- Working capital: NWC normalisation and recommended peg.
- Net debt and EV/Equity bridge: balance sheet analysis, debt-like items.
- Key risks and observations: issues that did not generate adjustments but warrant monitoring.
Phase 5: Presentation and sign-off (Days 12-14)
The final report is presented to the buyer's deal team and investment committee. Last-minute questions are addressed and the final document is issued.
What this means for your interview
When a recruiter asks "walk me through an FDD process", they want to hear: (1) setup and data room, (2) data analysis and QoE, (3) management meetings, (4) report structure, (5) presentation. Candidates who give this answer with concrete examples of what happens at each step — not just the labels — stand out.
The programme's case studies replicate the complete FDD workflow, from data pack to final report.