What is Financial Due Diligence?
Financial due diligence is the independent investigation of a target company’s financial information before a transaction such as an acquisition, investment, or financing. The objective is to confirm the quality of earnings, working capital, debt, and key risks.
How It Works
- Review historical financials, normalize EBITDA, and identify one-offs.
- Test working capital, debt-like items, and off-balance-sheet exposures.
- Produce a Q of E (quality of earnings) report for the buyer.
Saudi Context
Saudi M&A transactions on Tadawul and via PIF require diligence in line with IFRS and Companies Law. Big Four firms in Riyadh routinely deliver Arabic-English Q of E reports for cross-border deals.
Example
A PE fund acquiring a Saudi logistics business commissions diligence that finds SAR 8 million of inflated EBITDA due to capitalized maintenance costs. The price is adjusted down.