Earlier this month, Tom Murray, Partner at Friel Stafford, gave a group of ACCA members a working accountant’s view of due diligence, not the theory, but what actually decides whether a deal closes on fair terms, and what happens when it doesn’t.
Here are six of the key takeaways from Tom’s session.
1. Due diligence isn’t assurance, it’s pricing and protection
Due diligence doesn’t exist to give comfort that the numbers are broadly right. It exists to price value, allocate risk and build the protections that go into the sale agreement. Every finding should earn its place in the report by doing one of two things: moving the price, or changing a clause. If it does neither, it’s noise.
2. Quality of earnings is the whole game
In one worked example Tom shared with the room, a €2.94m swing from reported to diligence-adjusted EBITDA wiped out €19m of enterprise value at a 6.5x multiple. That’s the real cost of a “small” dispute over normalisations, and it’s why every add-back needs to be tested, evidenced and challenged rather than accepted at face value.
3. The real money moves in working capital and net debt
It’s tempting to focus negotiating energy on the headline multiple, but working capital and net debt are where completion economics are actually decided. Get the working capital peg wrong, or miss a debt-like item, and the parties end up negotiating euro-for-euro at completion, often over amounts that dwarf any movement in the multiple itself. A properly normalised peg, tested against seasonality and one-off swings, matters as much as the price itself.
4. Every finding is a number and a mechanism
A well-run due diligence process doesn’t just flag issues, it resolves each one into a euro figure and a route through the sale agreement: a price reduction, a warranty, an indemnity, a retention, a tax deed or an earn-out. The right mechanism depends on how quantifiable the risk is and how likely it is to materialise. A common mistake is relying on a standalone warranty for a risk that’s both quantifiable and likely. If it can genuinely move value, a warranty on its own won’t protect the buyer.
5. Reports mislead buyers in predictable ways
The same failings turn up again and again: management’s figures accepted without challenge, add-backs that only ever flatter EBITDA, and the risk that actually matters buried on page 80 instead of page 3. A long report isn’t necessarily a good one. The value in due diligence work is in the prioritisation, telling the client clearly what changes the deal and what doesn’t.
6. The difference shows up in the outcome
Two case studies from our own experience in the Irish mid-market illustrated the point. In one, thorough quality-of-earnings work turned a 7.0x headline multiple into 6.0x on the real number, and protected the one risk that mattered. The other skipped the tax review, and a misclassified contractor workforce turned into a six-figure Revenue exposure with no recovery route.
What this means for you
Whether you’re running the diligence process or negotiating off someone else’s report, the discipline is the same: follow the deal thesis, go where the money is, and make sure every material finding is tied back to price or protection in the sale agreement.
If you’re preparing for a transaction on either side of the table, Tom and the Friel Stafford team can help you understand exactly what the numbers are telling you, and what they should mean for the deal.
Get in touch with Tom Murray and the Friel Stafford team to discuss due diligence on your next transaction.