Data Integrity with Financial Due Diligence

By Meena Grizzetti, Senior Manager

If you are considering the sale of your company, it is crucial to be well-prepared to achieve a successful outcome. Due diligence is the process through which a buyer ensures that what the seller is representing is actually true. The information provided during due diligence must be of high quality and consistency.  Any inaccuracies or misstatements can increase the perceived risk of a transaction, which could affect the final outcome, such as a lower purchase price or the buyer walking away from the deal altogether.

Financial due diligence is a layered process that is complex and comprehensive. The strength of the foundation and the confidence that a due diligence team has in the answers being provided depend on how well each layer fits together. The main objective of financial due diligence is to thoroughly investigate the historical financial information of the target company, assess if the financial trends and data are consistent and accurate, and identify activity that is part of normal business operations.

Target’s management provides information through conversations with a diligence team and by populating an extensive data room based on information requests. The initial call with the target company management team sets the stage for the due diligence. During this conversation, the target management will walk the due diligence team through the company history, accounting policies and procedures, and any other aspect that the target deems to be relevant.  

After the initial call, the due diligence team will comb through the data room and create their own data model. The analysis performed will either support the target’s assertions or, in some cases, may contradict what the target has indicated. This is a pivotal point for a diligence team. If the data does not support the target’s narrative, the team will begin to lose confidence in the information provided or, worse, in the integrity of the target.

All the layers of information provided during due diligence will either support or contradict management’s normalization of the target’s financial performance. The due diligence team will either accept or reject the adjustments, modify the adjustments, or determine that there are additional diligence adjustments required to calculate the normalized financial results. 

The importance of data integrity cannot be emphasized enough. Having a trusted advisor to help a target company prepare for a transaction and support them through the process will give a diligence team confidence that the information provided is accurate and consistent with target’s story.  

The transaction advisory team at Wiss has experience both with buy side and sell side transactions. Our experienced team understands that quality information and a well-prepared management team make a solid foundation for a successful due diligence process.

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