Due diligence and management information
© Monster Ztudio / Adobe Stock
Share >

Due diligence and management information

How to determine the correct value of a business that a Corporation or Group is interested in buying?

There are more and more mergers of large companies such as banks, important corporate groups, as well as medium and even small companies, in the search for economies of scale, savings in administrative positions, as well as the need for vertical or horizontal integration.

Before acquiring a business, potential buyers should be able to know the tax and legal situation of the company they will acquire, likewise, the must have a slightly closer notion of its value and the most convenient is to perform an audit, pre-acquisition or due diligence.

This service allows you to review the correct value of assets and liabilities adjusted to a specific date, identifying contingencies and establishing „proforma“ financial statements that show the adjusted equity and EBITDA of the company, so that the projections of net cash flows are based on more reliable values.

We conduct rigorous and effective due diligence for our clients considering a merger or acquisition. Effective pre-acquisition due diligence is important to fully understand the business and operational risks, better analyses financial and operational health, set negotiation parameters, challenge valuation assumptions, uncover potential liabilities exposure and understand the integration risk.

Understanding our clients’ goals

At Ecovis, our first priority is to focus on the problems, goals, and issues important to our clients. Our concentrated client-focused approach ensures that we are delivering exactly what our clients need.

Our approach

In general, our approach includes but not limited to the following:

1. Financial reviews

When we represent buyers, we typically:

  • Validate Pro-forma EBITDA.
  • Justify “add-backs” and/or non-recurring expenses.
  • Assess the appropriate amount of “normal” working capital.
  • Comments on value drivers and operating cash flows.
  • Comments on net debt position/working capital.
  • Challenging the reasonableness of forecasts and projections.
  • Challenging the assumptions underlying the valuation of the business.
  • Related party transactions/stand-alone costs.

When we represent sellers, we typically:

  • Organize, maintain and provide due diligence materials to the buyer.
  • Help negotiate business aspects of the definitive agreement.
  • Provide an independent review of the overall value established for the business.

2. Accounting reviews

We inspect the target company’s historical financial statements and accounting policies and procedures. These reviews usually cover:

  • Accounting systems and records.
  • Internal accounting procedures.
  • Audited financial statements including cash, trade receivables and payables, property, plant and equipment, contingent liabilities, impairment of financial assets and non-financial assets, revenue and expense recognition.
  • Review of the auditors’ work papers.
  • Tax liabilities and obligations.

3. Business reviews

We can investigate specific areas of concern about the target company’s industry and operations. These reviews provide an in-depth analysis of the target company’s:

  • Industry.
  • Competitive environment.
  • Products and services.
  • Customers.
  • Key suppliers.
  • Sales and marketing.
  • Information technology systems.
  • Human resources issues.

Our due diligence investigations often provide negotiating leverage to our clients, resulting in better pricing and/or terms and a better awareness of the challenges and issues, facing the organization.

Uses of the value of a Company or Group:

There are multiple reasons why you want to determine the value of a company or Group:

  • Sales transactions, where the valuation is a reference value for buyer and seller. According to the buyer, it can be thought of as the maximum price to be paid, but for the seller, it will be the minimum price to accept.
  • Inheritances and wills, to compare the share value with other assets.
  • Strategic decisions of the company, such as to continue in a business, sell, merge, buy other companies, growing, etc.
  • Financing, for example, of private investors in exchange for participating in the business.

Our service is focused on a complete diagnosis of the economic-financial situation of the company to be acquired, making use of the information, i.e. the financial statements. To perform a detailed analysis of the situation of the company’s situation and respond to the concerns for which the employer does not find an answer, as follows:

  • Is the economic-financial situation of the company healthy?
  • Is the level of debt excessive? In which the funds were invested?
  • Is the financing structure of the company adequate?
  • What is the operating balance?
  • Which are the most important customers for the company?
  • Which customers have increased their business? Which have decreased it?