What Investors Look for During Financial Due Diligence
Transaction Due Diligence
Diligence That Goes Beyond the Numbers.
Terex Ventures supports investors, management teams and business owners with structured transaction due diligence across financial, commercial, documentation and management considerations. Our objective is to help decision-makers identify material issues before investment, acquisition, fundraising or other strategic transaction decisions are made.
Better Transaction Decisions Begin With Better Information.
Transaction due diligence provides decision-makers with a more complete understanding of the business behind a proposed transaction. Historical financial statements alone may not reveal customer concentration, working-capital pressure, contractual dependencies, management risks or inconsistencies in available information.
Our approach combines financial analysis, commercial assessment, documentation review and management-level observations to identify matters that may influence valuation, transaction structure, negotiations or post-transaction planning.
For a detailed perspective on the financial component of diligence, read our Insight, What Investors Look for During Financial Due Diligence .
Areas We Assess
The scope of transaction due diligence should reflect the nature of the transaction, the available information and the commercial questions that matter most to the parties involved.
Financial Due Diligence
Assessment of historical financial performance, earnings quality, working capital, cash flow and assumptions supporting future financial expectations.
- Revenue quality and growth
- Gross and operating margins
- Cost structure
- Working capital
- Cash-flow patterns
- Liabilities and obligations
- Forecast assumptions
Commercial Due Diligence
Review of the commercial drivers supporting business performance and the sustainability of the company's revenue base.
- Customer concentration
- Revenue mix
- Customer dependencies
- Market positioning
- Sales channels
- Commercial scalability
Documentation & Data Room Review
Review of available transaction and corporate information to identify documentation gaps, inconsistencies or areas requiring further clarification.
- Corporate documentation
- Ownership information
- Material agreements
- Customer contracts
- Vendor contracts
- Financing documentation
- Data-room readiness
Management & Business Dependency Review
Assessment of management structure, promoter dependence, key-person concentration and operational dependencies relevant to transaction risk.
- Founder and promoter dependence
- Management responsibilities
- Key-person risk
- Reporting practices
- Operational concentration
- Management information consistency
Structured Around the Transaction.
Define the diligence objectives
Establish the transaction context, scope and the key questions the diligence process needs to answer.
Review the information base
Analyse financial information, commercial data, corporate documentation and relevant management information.
Identify material observations
Assess inconsistencies, dependencies, unusual trends, documentation gaps and matters requiring clarification.
Assess transaction implications
Consider how findings may influence valuation, deal structure, negotiations, conditions or transaction planning.
Present decision-useful findings
Organise relevant observations to support management, investors or other transaction stakeholders.
When Transaction Due Diligence Matters
Investment Evaluation
Assessing financial and commercial quality before making an investment decision.
Fundraising Preparation
Identifying potential issues before institutional or strategic investor diligence begins.
Acquisition Evaluation
Supporting buyers in understanding performance, dependencies and material transaction considerations.
Sell-Side Preparation
Helping business owners identify potential diligence issues before approaching prospective buyers.
Strategic Partnerships
Reviewing relevant financial, commercial and organisational considerations before strategic arrangements.
Transaction Readiness
Preparing management information and documentation for a structured transaction process.
What Investors Look for During Financial Due Diligence
Learn how investors may review revenue quality, margins, working capital, cash flow, liabilities, forecasts and financial controls during a financial due diligence process.
Read Financial Due Diligence Insight →Preparing for an Investment or Strategic Transaction?
Speak with our advisory team about transaction due diligence, financial analysis, transaction readiness and other requirements relevant to your proposed transaction.
Transaction Due Diligence FAQs
Common questions businesses, investors and management teams ask when preparing for transaction due diligence.
What is transaction due diligence?
Transaction due diligence is a structured review of financial, commercial, operational and transaction-related information to help investors, buyers, management teams and business owners understand material risks and issues before completing a transaction.
What does transaction due diligence cover?
The scope may include historical financial performance, working capital, customer concentration, revenue quality, contractual dependencies, management information, business risks and other areas relevant to the proposed transaction.
Why is due diligence important before an investment or acquisition?
Due diligence helps decision-makers validate information, identify potential risks and better understand factors that may influence valuation, transaction structure, negotiations or post-transaction planning.
What documents do investors ask for during due diligence?
Investors may request financial statements, management accounts, projections, corporate records, customer and supplier information, material contracts, tax records, debt information and other relevant documentation. For a detailed checklist, read our Insight: What Documents Do Investors Ask for During Due Diligence?
How should a company prepare its data room?
A company should organise financial, corporate, commercial and transaction-related documents in a structured format, identify missing information and reconcile inconsistencies before sharing information with investors or buyers.
How long does transaction due diligence take?
The timeline depends on the size and complexity of the company, transaction scope, quality of available information and the speed at which management responds to information requests.
What are common financial issues found during due diligence?
Common issues may include inconsistent financial reporting, weak cash conversion, high customer concentration, working-capital pressure, unusual one-off items, unexplained liabilities or differences between management information and underlying records.
What is the difference between financial due diligence and transaction due diligence?
Financial due diligence focuses primarily on financial performance, earnings quality, cash flow and financial risks. Transaction due diligence can take a broader view by also considering commercial, documentation, management and transaction-specific matters.
When should a company start preparing for due diligence?
Preparation should ideally begin before serious investor or buyer discussions. Early preparation gives management time to identify gaps, organise documents and resolve avoidable inconsistencies.
Can due diligence affect company valuation?
Yes. Material findings relating to financial performance, liabilities, customer concentration, working capital or other risks may influence valuation discussions or transaction terms.
Is due diligence required during fundraising?
Investors commonly conduct some level of due diligence before completing an investment. The depth of review depends on the investor, transaction size, company stage and perceived risk.
Is due diligence important in M&A transactions?
Yes. Buyers typically review financial, commercial and corporate information before completing an acquisition or strategic transaction. Learn more about our M&A & Strategic Transactions capability.