This section captures essential information about the target company and transaction structure to establish context for financial due diligence. Accurate metadata ensures proper risk assessment and compliance with internal investment criteria.
Target Company Legal Entity Name
Primary Operating Jurisdiction
Legal Structure of Target Entity
Corporation (Ltd./Inc./Corp.)
Limited Liability Company (LLC)
Partnership (LP/LLP)
Sole Proprietorship
Holding Company
Special Purpose Vehicle (SPV)
Other
Industry Classification (NAICS/SIC Code and Description)
Business Model Characteristics (Select all that apply)
Asset-heavy manufacturing
Asset-light services
Software/SaaS subscription
E-commerce platform
Professional services
Distribution/Wholesale
Retail brick-and-mortar
Hybrid online/offline
Project-based contracting
Recurring revenue model
License/royalty-based
Franchise model
Enterprise Value/Transaction Size (USD equivalent)
Transaction Structure Type
100% Stock Purchase
100% Asset Purchase
Stock Purchase with 338(h)(10) election
Merger/Consolidation
Management Buyout (MBO)
Secondary Buyout
Carve-out/Spin-off
Joint Venture Formation
Minority Investment
Earn-out Contingent Structure
Other
Expected Transaction Close Date
Target Company Website URL
Has the target company undergone a Quality of Earnings (QoE) review by a third party?
Name of QoE Provider Firm
Explain rationale for proceeding without QoE review and identify alternative diligence procedures
Financial Statement Preparation Level for Last 3 Years
Audited by Big 4 firm
Audited by national firm
Audited by regional/local firm
Reviewed by external accountants
Compiled by external accountants
Internally prepared with accountant oversight
Internally prepared without external oversight
Management-prepared only
Are the financial statements prepared in accordance with IFRS or US GAAP?
Specify accounting framework used
Number of Full-Time Equivalent Employees (FTEs) at Last Fiscal Year-End
Does the target have material operations in multiple jurisdictions (>10% revenue from non-primary jurisdiction)?
Describe geographic footprint and revenue allocation by jurisdiction
Are there any known related party transactions with current owners or affiliates?
Estimated annual value of related party transactions
Has data room been established and populated?
CRITICAL: Data room must be established before proceeding with detailed financial due diligence. Document scope limitations and escalate to transaction lead.
Primary Investment Thesis/Strategic Rationale
This section documents the comprehensive reconciliation from reported EBITDA to normalized EBITDA, capturing all adjustments, add-backs, and normalization items. Precision in this section directly impacts valuation accuracy and deal structuring.
Historical Reported EBITDA and Management Adjustments (Last 3 Fiscal Years)
Metric | FY 2022 | FY 2023 | FY 2024 | Source Document Reference | ||
|---|---|---|---|---|---|---|
A | B | C | D | E | ||
1 | Reported EBITDA per Financial Statements | $0.00 | $0.00 | $0.00 | Income Statement | |
2 | Management Adjustments (Pre-diligence) | $0.00 | $0.00 | $0.00 | Management Presentation | |
3 | Management Adjusted EBITDA | $0.00 | $0.00 | $0.00 | Calculated | |
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Normalization Categories: Systematically identify and quantify all EBITDA adjustments. Each category requires detailed substantiation.
Types of Normalization Adjustments Identified (Select all categories applicable)
Owner/Key Management Compensation Above/Below Market
Non-recurring Professional Fees (M&A, litigation, restructuring)
One-time IT/Systems Implementation Costs
Facility Relocation/Consolidation Expenses
Discontinued Operations/Loss on Asset Sales
Excess Owner Perquisites (Personal travel, vehicles, club memberships)
Non-arm's-length Related Party Transactions
Bad Debt Expense Normalization
Inventory Write-downs/Write-offs
PPA (Purchase Price Accounting) Adjustments from Prior Deals
Synergy Adjustments (Cost savings post-acquisition)
Pro Forma Adjustments for Acquisitions/Disposals
Start-up Losses for New Initiatives
FX/Commodity Volatility Mark-to-Market
Legal Settlement Costs
Other Material Non-recurring Items
Detailed Normalization Adjustments Bridge (FY 2024 as Example - Replicate for Each Historical Year)
Adjustment Description | Category | Adjustment Amount (Add/(Deduct)) | Management Proposed? | Diligence Team Verified? | Supporting Document Reference | Adjustment Rationale & Methodology | ||
|---|---|---|---|---|---|---|---|---|
A | B | C | D | E | F | G | ||
1 | CEO compensation adjustment to market rate | Owner Comp | $250,000.00 | Yes | Yes | Executive Comp Benchmarking Report | CEO salary of $500k vs. market rate of $250k for similar-sized companies | |
2 | 2024 M&A advisor fees for this transaction | Professional Fees | $750,000.00 | Yes | Yes | Invoice from Investment Bank | One-time fees directly related to current sale process | |
3 | Legacy ERP system implementation costs | IT Implementation | $320,000.00 | Yes | Vendor Invoices & Payroll Records | Non-recurring implementation costs for system no longer in use | ||
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Are there any 'pro forma' adjustments for acquisitions or disposals that occurred during the historical period?
Pro Forma Adjustments for M&A Activity
Transaction Description | Transaction Date | Annualized Revenue Impact | Annualized EBITDA Impact | Adjustment Methodology | ||
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Have synergy adjustments been included in management's normalized EBITDA?
Synergy Adjustments - Cost Savings & Revenue Enhancements
Synergy Category | Annual Cost Savings | Annual Revenue Enhancement | Realization Timeline | Basis for Synergy Estimate | Included in Valuation? | ||
|---|---|---|---|---|---|---|---|
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Final EBITDA Reconciliation Summary (FY 2024 - Replicate for All Historical Years)
Reconciliation Item | Amount | Verification Status | ||
|---|---|---|---|---|
A | B | C | ||
1 | Reported EBITDA | $0.00 | Per Audited Financials | |
2 | Add: Management Adjustments | $0.00 | Per Management Presentation | |
3 | Add: Diligence Team Adjustments | $0.00 | Verified | |
4 | Add: Synergy Adjustments (if applicable) | $0.00 | Risk-Adjusted | |
5 | Normalized EBITDA - Diligence Conclusion | $0.00 | Final | |
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Are there any material discrepancies (>5% of EBITDA) between management's adjusted EBITDA and diligence team normalized EBITDA?
Describe material discrepancies, root causes, and implications for valuation and deal terms
Key Risks Identified in EBITDA Quality Assessment
This section establishes the working capital peg and identifies potential debt-like items or off-balance-sheet obligations that could impact enterprise value or require post-closing adjustments. Thorough assessment prevents value leakage and purchase price disputes.
Define the Working Capital Components Included in Peg Calculation
Historical Net Working Capital (NWC) Analysis (Last 3 Fiscal Years and Latest TTM)
Working Capital Component | FY 2022 | FY 2023 | FY 2024 | Latest TTM | As % of Revenue (TTM) | ||
|---|---|---|---|---|---|---|---|
A | B | C | D | E | F | ||
1 | Accounts Receivable, Net | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
2 | Inventory, Net | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
3 | Prepaid Expenses & Other Current Assets | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
4 | Total Current Assets (NWC-related) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
5 | Accounts Payable | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
6 | Accrued Expenses | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
7 | Deferred Revenue (if included) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
8 | Other Current Liabilities | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
9 | Total Current Liabilities (NWC-related) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
10 | Net Working Capital (Calculated) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
Working Capital Peg Methodology
Average of last 12 months (straight average)
Average of last 12 months (seasonally adjusted)
Median of last 12 months
Average of last 3 fiscal years
Average of last 2 fiscal years
Custom methodology based on business cycle
Negotiated fixed peg
No peg - dollar-for-dollar true-up
Proposed Working Capital Peg/Target Amount
Is the target business subject to material seasonality or cyclicality that impacts working capital?
Describe seasonal patterns, peak/low periods, and proposed adjustments to peg calculation methodology
Off-Balance-Sheet Liabilities and Debt-Like Items Identified (Select all applicable)
Operating Lease Obligations (pre-IFRS 16/US GAAP ASC 842)
Finance Lease Obligations
Letters of Credit Outstanding
Performance Guarantees/Warranties
Litigation Contingencies
Environmental Remediation Liabilities
Unfunded Pension/OPEB Obligations
Related Party Debt/Advances
Customer Deposits (non-current portion)
Deferred Compensation Arrangements
Asset Retirement Obligations
Take-or-Pay Supply Agreements
Below-Market Contract Obligations
Restructuring/Plant Closure Reserves
Product Recall Contingencies
Tax Indemnifications
None identified
Quantified Off-Balance-Sheet and Debt-Like Items
Item Description | Estimated Present Value Obligation | Timing of Expected Cash Outflow | Included in Enterprise Value? | Basis for Valuation | ||
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Are there any related party receivables or payables that will not survive the transaction?
Related Party Balance Sheet Items
Related Party Name | Receivable Balance | Payable Balance | To Be Settled at Close? | Nature of Relationship & Terms | ||
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Aging Analysis of Key Working Capital Components (As of Latest Balance Sheet Date)
Aging Category | Accounts Receivable | Inventory | Accounts Payable | Quality Assessment | ||
|---|---|---|---|---|---|---|
A | B | C | D | E | ||
1 | Current / < 30 days | $0.00 | $0.00 | $0.00 | Standard terms | |
2 | 31-60 days | $0.00 | $0.00 | $0.00 | Minor collection risk | |
3 | 61-90 days | $0.00 | $0.00 | $0.00 | Moderate risk | |
4 | > 90 days | $0.00 | $0.00 | $0.00 | High risk/Obsolete | |
5 | Total | $0.00 | $0.00 | $0.00 | Overall assessment | |
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Are there any obsolete, slow-moving, or excess inventory issues requiring write-down?
Estimated inventory write-down required
Is there any customer concentration risk within accounts receivable (top customer >20% of AR)?
Identify top customers, outstanding balances, and credit risk assessment
Working Capital Quality Assessment Summary and Key Risks
This section evaluates the quality, sustainability, and concentration risk of revenue streams. High-quality, recurring revenue with diversified customer base commands premium valuations, while concentrated or one-time revenue introduces significant risk.
Describe Revenue Recognition Policy and Critical Accounting Judgments
Has revenue recognition policy been consistent across the historical period?
Describe policy changes, timing, and quantitative impact on reported revenue
Revenue Stream Analysis by Category (Last 3 Fiscal Years and Latest TTM)
Revenue Category | FY 2022 | FY 2023 | FY 2024 | Latest TTM | Revenue Quality Rating | Growth Trend | ||
|---|---|---|---|---|---|---|---|---|
A | B | C | D | E | F | G | ||
1 | Recurring Subscription Revenue | $0.00 | $0.00 | $0.00 | $0.00 | High - Contracted | Stable growth | |
2 | Perpetual License Revenue | $0.00 | $0.00 | $0.00 | $0.00 | Medium - Lumpy | Declining | |
3 | Professional Services | $0.00 | $0.00 | $0.00 | $0.00 | Low - Project-based | Volatile | |
4 | Maintenance & Support | $0.00 | $0.00 | $0.00 | $0.00 | High - Annually renewed | Growing | |
5 | One-time Hardware Sales | $0.00 | $0.00 | $0.00 | $0.00 | Low - Non-recurring | Flat | |
6 | Total Revenue | $0.00 | $0.00 | $0.00 | $0.00 | Blended | Overall trend | |
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Is there customer concentration risk (top 5 customers represent >30% of total revenue)?
Top Customer Concentration Analysis (Latest TTM)
Customer Name (or Code) | TTM Revenue | % of Total Revenue | Contract Type | Contract Expiration Date | Auto-Renewal Clause? | Customer Relationship Risk Assessment | ||
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Are customer contracts typically longer than one year with committed revenue?
Estimated Contracted Backlog/Remaining Performance Obligations
Customer Retention and Churn Metrics (Last 3 Fiscal Years)
Metric | FY 2022 | FY 2023 | FY 2024 | Benchmark vs. Industry | ||
|---|---|---|---|---|---|---|
A | B | C | D | E | ||
1 | Gross Revenue Retention Rate (%) | 0 | 0 | 0 | Industry avg: 85% | |
2 | Net Revenue Retention Rate (%) | 0 | 0 | 0 | Industry avg: 110% | |
3 | Customer Count - Beginning of Period | 0 | 0 | 0 | N/A | |
4 | Customer Count - End of Period | 0 | 0 | 0 | N/A | |
5 | Customer Churn Rate (%) | 0 | 0 | 0 | Industry avg: 10% | |
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Are there any material deferred revenue balances that may not be recognized post-acquisition?
Estimated deferred revenue haircut for fair value adjustment
Revenue Quality Red Flags Identified (Select all observed)
Bill-and-hold arrangements
Side letters with non-standard terms
Channel stuffing or distributor overstocking
Revenue recognized on verbal commitments only
Significant revenue from month-end/quarter-end acceleration
Multiple-element arrangement misallocation
Lack of VSOE for software companies
Long-term contracts with fixed pricing and cost overruns
Revenue from related parties without arm's-length terms
Significant barter transactions
None identified
Has the company experienced any material customer disputes, refunds, or clawbacks in the last 24 months?
Describe incidents, financial impact, and resolution status
Revenue Quality Assessment Summary and Key Risks
This final section captures executive review, risk assessment certification, and formal sign-off from key transaction leaders. This documentation is critical for investment committee approval and audit trail compliance.
Lead Financial Due Diligence Partner Name
Lead FDD Partner Professional Designation
FDD Partner Review Completion Date/Time
Have all material financial due diligence scope limitations been identified and documented?
CRITICAL: All scope limitations must be documented before sign-off. Escalate to transaction lead immediately.
Key Financial Risks Summary and Mitigation Status
Risk Category | Specific Risk Description | Risk Severity (1-5, 5=Critical) | Mitigation Identified? | Mitigation Strategy or Deal Structure Protection | ||
|---|---|---|---|---|---|---|
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1 | EBITDA Quality | Overly aggressive management add-backs lacking documentation | Yes | Require seller to provide 3rd party QoE; holdback provision | ||
2 | Working Capital | High DSO due to customer concentration risk | Yes | Specific NWC true-up mechanism; customer contract assignment | ||
3 | Revenue Quality | 30% of revenue from top 2 customers with <1 year contracts | Revenue-based earn-out; customer retention warranty | |||
4 | Off-Balance-Sheet | Unrecorded contingent liability from pending litigation | Yes | Litigation escrow; seller indemnification | ||
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FDD Partner Overall Assessment of Normalized EBITDA Quality
FDD Partner Assessment of Working Capital Peg and Off-Balance-Sheet Items
FDD Partner Assessment of Revenue Quality and Customer Concentration Risk
Does the FDD Partner recommend proceeding with the transaction based on financial due diligence findings?
Specify conditions required for recommendation or reasons for non-recommendation
Corporate Development VP Name
Corporate Development VP Review Date/Time
Has Corporate Development VP reviewed the FDD findings and risk assessment?
Corporate Development VP review is mandatory before investment committee submission. Please coordinate review meeting.
Are there any unresolved financial issues that could materially impact valuation (>5% of enterprise value)?
Describe unresolved issues and proposed resolution path before investment committee approval
Overall Transaction Recommendation
Proceed with current valuation and terms
Proceed with valuation adjustment
Proceed with enhanced deal protections (escrow, earn-out, indemnities)
Proceed with additional diligence conditions
Do not proceed - financial risks too high
Hold pending resolution of identified issues
Final Comments and Investment Committee Presentation Key Messages
Lead Financial Due Diligence Partner Electronic Signature
Corporate Development VP Electronic Signature
I certify that the information provided in this audit intake form is accurate and complete to the best of my knowledge, and that all material financial risks have been disclosed
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