Importance of due diligence in financial transactions
Financial Due Diligence is an essential process in mergers, acquisitions and other financial transactions, as it provides a detailed analysis of the economic, financial and operational situation of a company. Its main objective is to minimize risks, validate financial information and ensure that the operation is carried out under fair and transparent terms.
In an acquisition, it allows to know the viability of the business and to confirm its recurrent EBITDA, its recurrent free cash flow (FCF) and its net financial debt, key aspects to evaluate its capacity to generate value. It also helps to detect hidden liabilities, tax contingencies or risks that may affect future profitability.
In a merger, Due Diligence is key to ensure financial compatibility between the companies involved, identifying synergies and avoiding imbalances that could compromise the success of the integration. It also allows for valuation adjustments and better structuring of the negotiation.
In a company sale, Vendor Due Diligence (VDD) allows the seller to anticipate potential risks and optimize the presentation of its business to potential buyers. By preparing a detailed and transparent report, it speeds up the sale process, reinforces the company’s credibility and avoids surprises that could affect the price or the viability of the transaction.
Beyond mergers and acquisitions, Financial Due Diligence is key in restructurings, search for financing or entry of new investors, ensuring transparency, optimizing negotiations and reducing risks in any transaction.
Financial due diligence process at Maraz
At Maraz, we perform Financial Due Diligence with a structured methodological approach, guaranteeing a rigorous, accurate and totally confidential analysis. Our objective is to provide our clients with clear and detailed information to minimize risks and optimize decision making in any financial operation.
Stages of the Due Diligence process:
Due Diligence Planning
The scope and focus of the due diligence is determined and, based on preliminary information, the most relevant areas to be reviewed in the due diligence, as well as the corporate perimeter in the case of a group of companies.
Request and collection of information
We facilitate the sending of information by means of a “data room” in which all the required information is received, with a check-list of the information requested, the information received and the information pending to be received. We usually request balance sheets for several fiscal years, the closest closing to the Due Diligence, financial statements presented, financial statements, financial records, journals, taxes, labor documentation, relevant contracts, invoices, delivery notes, bank statements, loan agreements and debt structure, business plans, sales reports, margins, budgets, documentation related to ongoing litigation, among others.
Exhaustive analysis of the information
We verify financial statements, debt structure and Net Financial Debt, recurrent EBITDA and recurrent free cash flow (FCF). Since these parameters are very relevant for the valuation. As well as the reasonableness of the Business Plan projections. Possible adjustments and contingencies are identified. If any problematic area is detected, we go deeper into that area and request additional information, keeping track of the questions asked and the answers received in writing from the representatives of the company subject to the Due Diligence.
Risk and opportunity assessment
Our analysis identifies financial risks, possible adjustments to results, balance sheet or recurring cash generation, as well as possible tax, labor or legal contingencies, as well as synergies and opportunities for improvement that can optimize the company’s valuation.
Preparation of the Due Diligence Report
We deliver a detailed report with key findings, recommendations and possible adjustments to the financial statements, ensuring full transparency and confidence in decision making.
Who is our due diligence service for?
The Financial Due Diligence service is aimed at companies, investors and entities seeking to rigorously evaluate the financial situation of a business prior to a transaction. Both buyers and sellers benefit from an in-depth analysis that allows them to make informed decisions, minimize risks and optimize the value of the transaction.
Due diligence in the purchase of a company
For buyers and investors, Due Diligence is a key tool to gain a detailed understanding of the financial health of the business they wish to acquire. Through a thorough analysis of recurring EBITDA, recurring free cash flow (FCF) and net financial debt, we identify hidden risks, accounting inconsistencies and opportunities for improvement. This process allows you to negotiate with objective information and make adjustments in the valuation, ensuring a secure and strategic purchase
When representing the buyer (Buy-Side), we focus on revealing key risks and opportunities so that our clients can make safe and informed purchasing decisions. Among the phases of the process, we highlight:
- Identification of potential risks that may affect the transaction.
- Evaluation of the target company’s EBITDA (Quality of Earnings).
- Analysis of the free cash flow (FCF) of the target company.
Analysis of the working capital, its quality and trend. - Quantification of net debt and detection of hidden financial liabilities.
- Detection of possible contingencies / hidden financial liabilities.
- Quantification of Adjusted Ebitda and Net Debt.
- Review of financial projections and analysis of the assumptions used in their preparation.
- Review of the sale and purchase agreement from a financial perspective.
Vendor Due Diligence: Transparency in the sale of companies
For those companies that are about to initiate a sale process, our Vendor Due Diligence service is of great help as it will increase the buyer’s confidence by presenting accurate and consistent financial information. In addition, it will identify potential problems before the buyer’s review of the data takes place. In this way, the seller anticipates problems with the answers and even resolves certain deficiencies before they are detected directly by the buyer, if possible. With Vendor Due Diligence we try to minimize the problems that will arise in the Buyer’s Due Diligence, as well as maximize the valuation of the company before the sale.
In short, Due Diligence, both for the sale and the purchase, minimizes the risk for both the seller and the buyer, allowing transactions to be carried out without possible future surprises that could lead to a legal conflict.
In addition to the buyer or seller Due Diligence, other “layers of security” are superimposed on the transaction by means of the legal clauses of the purchase and sale transaction. However, a thorough review of what is being sold or bought allows you to fine-tune and adjust the wording of those contracts and maximise the legal certainty of company transactions
Why choose Maraz as your due diligence expert?
Choosing Maraz for Financial Due Diligence means having a team of experts with extensive experience in the rigorous evaluation of companies and financial operations. Our differential approach is based on the combination of specialization, extensive experience in conducting due diligence and personalized support, ensuring that each client makes informed decisions with complete confidence.
Experience and professionalism
Customized solutions
Transparency and trust
Our experience and professionalism allows us to analyze in depth the financial situation of any company, evaluating business models and financial statements to evaluate the value-generation capacity of a company and its recurrence, as well as to detect hidden risks and optimization opportunities. We apply advanced financial analysis methodologies, identifying adjustments and contingent liabilities that could affect the transaction.
Our team is constantly trained and updated, which allows us to be up to date with regulations, market trends and best practices, ensuring a service of the highest quality and accuracy. In addition, our continuous monitoring approach guarantees a service tailored to the specific needs of each client, facilitating the negotiation and optimization of the value of the transaction.
At Maraz, we work with transparency, independence and maximum confidentiality, making us a key partner for those seeking to minimize risks and maximize success in any financial transaction.
Our success stories
At Maraz, we measure our success by the real impact we generate in each company we work with. Through a strategic, personalized, and pragmatic approach, we have performed Due Diligences for numerous companies.
Customer Testimonials
The best proof of our commitment and excellence are the results we generate. Our clients rely on Maraz for the financial advice of their companies and to carry out Due Diligence in the process of buying and selling companies with customized solutions and expert support.
Alfredo Muñoz Quiles
Excellent professionals. Capable, trained, honest and attentive.
Ignacio Orts
Javier is very professional, diligent, direct and honest, with an enormous experience, which makes him a safe bet.
Jorge Mataix
A reference consultancy.
Javier, a great professional at the head of it.
Jose Joaquín de Rojas Roca de Togores
Great analytical skills, simple and elegant solutions to complex problems. Complete mastery of the peculiarities of medium-sized companies and family businesses, absolute professional solvency. Highly recommended for his extensive experience and honesty as a consultant.
Mario Fornés Olmo
Javier is a great professional and a very good person. Undoubtedly, whoever is looking for a sincere and quality advice will find his place here. He provides very practical and well-founded solutions. Whoever takes Javier’s advice will be sure to be in the best hands. 100% recommendable.
Salvador Blasco Magraner
Excellent work. A great team of professionals and above all good people who transmit confidence from the first minute.
Frequently asked questions about financial due diligence
We have compiled the most frequently asked questions about our Corporate Financial Due Diligence services. If you do not find the information you are looking for, please contact us and our team of experts will be happy to advise you.
What is Financial Due Diligence and why is it important?
Financial Due Diligence is an exhaustive analysis process that evaluates the economic, financial and operational situation of a company before carrying out a financial transaction, such as a purchase, merger or investment. Its objective is to provide detailed and objective information to minimize risks and make informed decisions.
This process is key to verify the financial viability of the business, analyzing its recurring EBITDA, recurring free cash flow (FCF) and net financial debt. It also allows identifying tax contingencies, hidden risks or inconsistencies in the financial statements, avoiding surprises after the transaction.
Due Diligence is essential in acquisitions, mergers and restructurings, as it allows negotiating with real information and, in many cases, adjusting the valuation of the business. In a sale, Vendor Due Diligence helps to speed up the transaction, increasing transparency and credibility with potential buyers.
In short, this process ensures security, transparency and more efficient decision-making in any financial transaction.
What are the advantages of performing Financial Due Diligence?
Performing financial due diligence has several key advantages, especially in the context of mergers, acquisitions, investments or any major financial transaction. Some of the most outstanding advantages are:
Risk identification: Allows you to detect potential financial risks, such as hidden debts, contingent liabilities, liquidity problems, or accounting irregularities, which may negatively affect the transaction.
Accurate valuation: Helps ensure that the value paid for the company or assets is fair and based on an accurate assessment of its financial statements, avoiding overpayment or undervaluation.
Transparency of information: Provides a clear and detailed view of the target company’s actual financial situation, helping to make informed decisions about the viability of the transaction.
Creditworthiness confirmation: Verifies whether the target company has the financial capacity to meet its obligations.
Tax optimization: Due diligence identifies tax planning opportunities, such as optimizing the structure of the transaction to minimize the tax burden and maximize tax benefits.
Informed negotiation: By having a detailed analysis of the financial situation, the buyer can negotiate better terms or conditions, based on the financial reality of the company.
Regulatory compliance: Ensures that the target company is in compliance with applicable laws and regulations.
Other Maraz services
In addition to our Financial Due Diligence service, Maraz offers a range of services designed to boost your company’s growth, solvency and profitability.
