TPL-DD — Financial Due Diligence (advisory)
Pre-acquisition financial due-diligence on the target. Quality-of-earnings analysis, working-capital benchmarking, deal-breaker identification, normalised EBITDA. Output: a management-letter (red-flag report) the buyer uses in price negotiation.
The 6 DD focus areas
| Area | Output |
|---|---|
| Quality of Earnings (QoE) | Normalised EBITDA + adjustment list (one-offs, related-party, cut-off) |
| Working capital | Average WC level + seasonal pattern → drives deal-day target WC |
| Net debt | Cash + debt-like items + indemnifiable contingencies on deal day |
| Forecast review | Sanity-check management forecasts vs historical performance + market |
| Tax exposures | Open OTA matters · uncertain tax positions · transfer-pricing risk |
| Commercial | Customer concentration · contract review · KPIs vs market |
Template metadata
| code | TPL-DD |
| requires_workpapers | 0 (uses task-based fieldwork) |
| est_total_hours | 80-300 (deal size dependent) |
| typical duration | 3-8 weeks |
| deliverables | Final DD report (red-flag) · Excel databook · QoE bridge · WC benchmarking · Tax memo |
The 5 task phases
| planning | Engagement letter (with deal terms reference) · NDA + reliance letter · scope memo · data-room access |
| fieldwork | QoE adjustments · WC analysis · net debt build-up · tax exposures · forecast critique · management interviews |
| reporting | Red-flag report · QoE bridge · databook · tax memo · executive summary |
| review | Director review · partner sign-off · client (buyer) walkthrough call |
| admin | Issue · billing · post-deal close-out memo |
Step-by-step
Reliance letter
Buyer's lender + advisors may want to rely on your DD. Negotiate the reliance letter terms BEFORE issuing the report — caps liability, sets distribution, requires their NDA. Your engagement letter references this.
Build the databook
Big Excel: 3-year P&L by month, BS by quarter, cash by month. KPIs (revenue per FTE, gross margin, days-receivable). Auditors love numbers; deal-makers love trends.
QoE bridge
Reported EBITDA → +/− one-offs (legal settlements, asset-disposal gains, related-party non-arm's-length, restructuring) → Normalised EBITDA. Each adjustment defended with evidence.
Working capital target
Compute monthly average WC over 24 months → recommend deal-day target. Drives the SPA's WC adjustment mechanism.
Red-flag report
Buyer-friendly: 1-page exec summary · 5-10 key issues with $/OMR impact · methodology · scope limitations. Don't bury the lede.
Walkthrough call
1-hour call with buyer + advisors. Talk through the report. Q&A. This is often where the deal price moves.
DD is one-sided — you act for the buyer, not the seller. Don't share working drafts with the seller / management. They can see only the final agreed-distribution version, and only with buyer's permission. Information leakage in M&A can blow up deals.
Deal < OMR 1M: 80-120 hours, light-touch DD. OMR 1-10M: 150-250 hours, full DD. OMR 10M+: 300+ hours with specialists (tax, IT, legal). Quote accordingly — under-quoting a complex DD eats your firm's margin.