Financial Due Diligence

Overview

Objectives

Financial Due Diligence (FDD) is a cornerstone of the M&A and investment process.
It provides a rigorous and objective analysis of a target company’s financial health and earnings structure, identifying potential risks and assessing their impact on future cash flows.

If liabilities or financial discrepancies are discovered after an acquisition, they can have a significant adverse effect on management and corporate value.
For this reason, FDD is a critical factor in making sound, high-stakes investment decisions.

At our firm, Certified Public Accountants with extensive experience at Big 4(Global) audit firms provide practical and highly reliable FDD services.
Leveraging our deep expertise in M&A support, we deliver strategic insights from the perspective of investors and acquiring companies.

Financial Due Diligence transcends a mere review of financial data.
It is a strategic exercise designed to achieve the following core objectives:

Identification of Financial Risks: Detecting off-balance-sheet liabilities, contingent risks, and accounting irregularities to safeguard the transaction.
Assessment of Core Profitability: Analyzing normalized earnings to understand the target’s true profit potential and evaluate the sustainability of its business model.
Cash Flow & Liquidity Analysis: Examining working capital dynamics and capital expenditure requirements to ensure a clear understanding of future funding needs.
Validation of Enterprise Value: Critically reviewing business plans and valuation assumptions to ensure the reasonableness of the proposed purchase price.
Strategic Input for M&A Agreements: Identifying key findings to be addressed through price adjustments, representations and warranties, or specific indemnities in the definitive agreement.

Our Financial Due Diligence services are designed with flexibility at their core.
We tailor our approach to the specific dynamics of the target company, the transaction structure,
and your requirements regarding scope, timeline, and budget.

Comprehensive Financial Statement Analysis

We conduct a multi-year review of financial statements and trial balances to evaluate profitability, growth trajectories, and financial soundness. This includes a meticulous examination of accounting treatments related to past corporate restructurings.

Assessment of Normalized Earnings

We identify and adjust for non-recurring items and irregularities. This allows us to determine a sustainable earnings level that reflects the target’s true underlying performance.

Working Capital & Cash Flow Analysis

By factoring in seasonality and industry-specific business practices, we analyze required working capital levels and cash flow trends to evaluate financial stability and future liquidity.

Identification of Off-Balance-Sheet & Contingent Liabilities

We conduct a thorough review of contracts and transaction histories to uncover hidden risks or potential financial burdens that could arise post-closing.

Review of Accounting Policies

We assess compliance with applicable accounting standards and precisely quantify the impact of any necessary adjustments on the financial statements.

Strategic Reporting

We deliver clear, concise, and high-impact reports that highlight the key findings most critical to your investment decision-making and negotiation strategy.

High-Quality Analysis led by
Big 4-Experienced CPAs

Our services are led by Certified Public Accountants with extensive experience in auditing listed companies and conducting complex financial due diligence. Depending on the scale of the engagement, we assemble dedicated project teams of seasoned professionals to ensure the highest standards of rigor.

Practical Risk Insight Informed by
Business Realities

We go beyond surface-level numerical verification. By deeply understanding your business model and industry dynamics, we analyze how specific findings will impact future earnings and cash flows, providing actionable insights for management.

Agility & Flexibility

M&A transactions demand speed. We offer a highly responsive approach, accommodating urgent timelines and providing “limited scope” due diligence tailored to your specific focus areas and budget constraints.

Support for Mid-Sized Companies & Startups

We believe high-end FDD should be accessible to Mid-Sized Companies and Startups. In addition to large-scale transactions, we provide practical, right-sized procedures for new startups and owner-operated businesses, adapting our methodology to the realities of each enterprise.

By leveraging our Financial Due Diligence services,
you can realize the following strategic advantages:

Early Identification of Decision-Critical Risks: Detecting financial irregularities and potential liabilities at an early stage to inform your investment strategy.
Evidence-Based Valuation: Utilizing objective findings as robust supporting evidence for business valuation and price negotiations.
Enhanced Negotiation Leverage: Gaining a strategic advantage in drafting acquisition agreements, including price adjustments and indemnity clauses.
Foundation for Post-Merger Integration (PMI): Providing the financial clarity necessary for seamless integration and early synergy realization.
Mitigation of Post-Closing Uncertainties: Significantly reducing the risk of unforeseen financial burdens emerging after the transaction is finalized.

M&A transactions demand both agility and sound judgment.
Whether you require a rapid assessment of a target’s financial condition,
a rigorous validation of the transaction price,
or a customized scope tailored to your specific needs,
we provide the responsive expertise necessary for a successful deal.

Contact Us

We offer free initial consultations and preliminary assessments.
A Certified Public Accountant will personally conduct the consultation and
propose the most suitable valuation approach for your company.

For inquiries or consultations, please contact us via the Inquiry Form.

03-3484-0878

In M&A transactions, there is often concern that “hidden liabilities” or risks not reflected in the target company’s books may remain undiscovered until just before the final agreement is signed.

Furthermore, within the limited time available for due diligence, buyers may struggle to obtain objective evidence that supports the appropriateness of the proposed acquisition price.

Another common challenge is how to translate due diligence findings into practical deal terms, such as price adjustments or representations and warranties in the transaction documents.

When is the best time to engage financial due diligence?

Financial due diligence is most commonly conducted after the signing of a Letter of Intent (LOI). However, we can also perform preliminary reviews at the early stage of the deal process to help identify potential risks and key focus areas before proceeding further.

Aside from off-balance-sheet liabilities, what other areas do you focus on during your review?

In addition to identifying hidden liabilities, we carefully assess factors that may affect post-acquisition cash flow, including: sustainability of earnings (normalized earnings power) excess inventory and aging receivables non-transparent payments to management or related parties. Our objective is to provide a clear understanding of the target’s true financial performance and risk profile.

How long does the due diligence process typically take?

Depending on the size and complexity of the transaction, we generally deliver a report within approximately two weeks to one month after receiving the necessary documents. For transactions requiring faster decision-making, we can also provide an early “flash report” highlighting key issues and potential risks.

Can you support negotiations for purchase price adjustments?

Yes. We quantify the financial impact of risks identified during due diligence and prepare analyses that can be used as objective support in purchase price negotiations.

Do you provide due diligence services for sole proprietors and small businesses?

Yes. We offer cost-effective and well-focused due diligence plans tailored to the size and characteristics of the target business, ensuring a focused and efficient review that prioritizes the most important areas.

In Quality of Earnings analysis, can you consider not only one-off adjustments but also future stand-alone costs?

Yes. In addition to analyzing historical trends and adjusting for non-recurring items, we also consider additional costs expected after the acquisition, as well as allocation simulations of shared costs in carve-out transactions.

Can you advise on how findings identified during due diligence should be reflected in purchase price adjustments or representations and warranties in the SPA (Share Purchase Agreement)?

Yes. We provide practical advice on how financial risks identified during due diligence can be incorporated into deal terms, including purchase price adjustments and representations and warranties in the SPA.

For small or mid-sized targets, can you provide an agile approach such as a “red flag report” that focuses on material issues?

Yes. We provide flexible support tailored to the needs of each transaction.
Even within limited time and budget constraints, we specialize in conducting focused reviews that concentrate on critical risks that could potentially become deal breakers.

1.Initial Consultation / Inquiry

Please feel free to contact us via our inquiry form or by phone. A Certified Public Accountant will personally review your inquiry and respond promptly.
At this early stage, it is not necessary for the scope of work to be fully defined. We will first listen to the issues you are currently facing and the outline of your project, and help clarify how our firm may be able to support you.
All inquiries are handled in strict confidence in accordance with professional ethics, so you may proceed with complete peace of mind.

2.Meeting / Interview

To gain a deeper understanding of your company’s current situation and challenges, we will conduct a detailed discussion either in person or online.
In projects requiring a high level of expertise, it is essential not only to address visible issues but also to identify potential risks. While carefully confirming the scope of work, expected schedule, and your internal structure and policies, we will work with you to design the most appropriate support framework to strengthen your financial strategy.
Supporting documents may be requested where necessary.

3.Proposal / Fee Estimate

Based on the scope confirmed during the discussion, we will provide a detailed proposal clearly stating the professional fees and the basis for their calculation.
As an independent firm, we maintain a flexible and responsive fee structure while ensuring high-quality service. To avoid ambiguity or unexpected additional costs that may affect project budget management, we clearly explain the relationship between the services provided and the associated fees.
If necessary, the scope of work can be adjusted or implemented in phases to better align with your budget and needs.

4.Confirmation of Terms

Once the proposal is agreed upon, we will finalize the specific conditions for the engagement. This includes confirming details such as the frequency of reporting, timing of regular meetings, communication methods, and procedures for exchanging necessary documents.
Our goal is to ensure that you can entrust the engagement to us with confidence from commencement through completion. By establishing a structure that minimizes the burden on your team while allowing you to track progress accurately and in a timely manner, we build a cooperative framework based on clearly defined roles and responsibilities.

5.Contract Execution

After all terms have been finalized, we will formally execute the engagement agreement. The contract is prepared to appropriately manage legal risks while remaining fair and clear for our clients.
Upon execution, our support will formally begin under the legal and professional responsibilities of a Certified Public Accountant. We ensure a prompt and appropriate contracting process that can also withstand explanations required by audit firms or other stakeholders.

6.Commencement of Services

Following the execution of the agreement, we will promptly begin our work. In accordance with the agreed schedule, we will proceed carefully with research, analysis, and preparation of necessary documentation.
Throughout the engagement, we do more than simply perform assigned tasks. As professionals, we provide advice when appropriate and work alongside you as a partner to enhance the quality of management decisions.
Our commitment extends beyond delivering formal outputs. While maintaining professional independence, we aim to provide value that directly contributes to your company’s growth and the sustainable enhancement of corporate value.

Contact Us

For inquiries or consultations, please contact us via the Inquiry Form.

03-3484-0878

Financial Due Diligence

Financial Due Diligence
Overview

Objectives of
Financial Due Diligence

Our Financial Due Diligence Services