What buyers need to know

At a glance

Crowe recently published a six-part series on the M&A lifecycle from a buyer's perspective. The series covers the key stages of a transaction: developing an acquisition strategy and screening targets, valuation, due diligence and integration.

Financial due diligence is a critical part of the transaction process. It helps buyers assess the quality and sustainability of earnings, identify potential risks and gain a clearer picture of how a business generates value and cash. The findings often influence valuation, deal structure and SPA protections, making it one of the most important stages of the acquisition process.

Below, we share some observations from an Irish market perspective and highlight common themes we encounter when advising clients on transactions.

Financial Due Diligence Insights from the Irish Market

While every transaction is different, the same themes emerge repeatedly during financial due diligence. The most common findings relate to earnings quality, customer concentration, working capital requirements, management dependency and cash conversion.

• Where there is customer concentration risk, assessing that risk and understanding the potential exposure in the event of a loss of a key customer is critical to advising on maintainable earnings.
• Key person dependency can often be a risk area, particularly in founder-led businesses, where customer relationships, operational knowledge and decision-making are concentrated in one or two individuals. Buyers will want comfort that the business can continue to perform if those individuals step back.
• Understanding the revenue profile of a business is important. Where future revenue is harder to predict or project-based, buyers may require additional evidence that earnings are sustainable and capable of being maintained after the transaction.
• Managing costs to maintain profit conversion is an area of focus, particularly where price elasticity makes it more difficult to pass on increased costs
• Working capital profile is often a key area of focus. Seasonal trading patterns, aged receivables, slow-moving inventory and overdue creditor balances can all affect the normal level of working capital required and, ultimately, deal value.
• Balance sheet risks can arise from aged debtors, unidentified debt-like items, deferred capital expenditure, tax exposures or other contingent liabilities. Identifying these issues early helps buyers assess the potential exposures within the business and avoid unexpected costs post-completion.
• EBITDA to cash conversion: Buyers will want to understand whether reported profits translate to cash generation, as strong EBITDA performance can be impacted by working capital requirements, capital expenditure demands or poor debtor collection.

Identifying these issues in advance of deal completion can help to inform a buyer from a value and structuring perspective, as they move towards completion of an important acquisition.

How Crowe can help

Crowe's Corporate Finance team has extensive experience advising buyers and sellers throughout the transaction lifecycle. Our financial due diligence specialists work closely with clients to identify key risks, assess earnings quality, evaluate working capital requirements and provide clear, practical insights to support informed decision-making.

Whether you are considering an acquisition, preparing for a sale or exploring strategic growth opportunities, our team can help you navigate the complexities of a transaction while maximising value and reducing risk.

Read the original article from Crowe UK here.