Handbook

Venture Completes
 Increasing assets under management 1 Strategic Planning 9 Final valuation of target
Performing financial modeling and
valuation. 2 Preliminary target research 10 Negotiation
Conducting internal research on 3 Evaluation of public 11 Considering financing
potential investment and financing available data sources
opportunties.
4 Initial Contact 12 Legal aspects
Identifying investors and recruiting
capital to manage. 5 NDA agreement 13 Purchase price allocation
Earning the most favourable risk-
6 Initial business valuation 14 Integration
adjusted return on capital.
Determing whether to buy, sell or hold 7 Letter of intent 15 Goodwill impairment
investments.
Overseeing clients’ money. 8 Due diligence

Termination provisions
Introduction Binding or Non-Binding
Description of the transaction nature
Advertising and selling securities. Payment terms Exclusivity
Generating liquidity for listed securities. Confidentiality Timeline and next steps
Assisting clients with getting in and out of Representations & Warranties Dispute resolution
positions.
Providing equity research analysis of
indeed companies.
Performing financial modeling and
valuation.
Management and control Equity stakes to retain
Advising corporate clients on major
Voting rights Control and decision making
transactions, mergers and acquisitions.
Protection against dilution Earn-outs
Creating and building relationships with
Regulatory approvals Warranties and indemnities
new businesses and corporations.
Integration plan Liability to retain key
Facilitating increasing debt and/or equity.
Consolidation effects personnel

Define scope for review e.g. 3-5 Sales and other revenue projections
years Earnings projections
Financial statements Operating expense projections
Standalone positions in financials Net working capital projections
Profitability, liquidity, activity and (receivables inventory, and liabilities
structure indication to suppliers)
EBITDA normalisation Long-term and fixed asset and
Revenue and expenses impact on depreciation projections.
EBITDA Other balance sheet term
Reviewing business units projections Discounted cash flow method
performance EBITDA projections Precedent transaction methods
Analysis NWC and debt Cash flow projections Net book value method
Venture capital method
Valuation by multiple
Berkus method
Comparable companies method
M&A Handbook
DUE DILIGENCE venturecompletes.com

FINANCIAL TAX COMMERTIAL

DUE DILIGENCE DUE DILIGENCE DUE DILIGENCE

Business and processes Understanding the tax function Market analysis

understanding Review external advisor outputs Product and service analysis
Finance function and team Review current and past disputes Customer and sales analysis
assessment with tax administration Marketing and brand analysis
Overall financial statements Check did the taxpayer submit all Operational analysis
reviewing tax returns and pay taxes timely Financial performance analysis
Reviewing specific balance sheet Standardised list of questions to the Regulatory and legal compliance
positions client Management and organisational
Analysing financial performance Prepare sapling for reviews assessment
Assessing financial controls CIT testing Synergy and integration plan
Examming contracts and VAT testing
agreements PIT and other taxes testing
Assessing contingencies
TECH
DUE DILIGENCE
LEGAL
CULTURAL DUE DILIGENCE Assessment of current technology
DUE DILIGENCE stack
Preparation and planning Software quality and code review
Understand your own company Document collection and review Cybersecurity and data privacy
culture Legal analysis compliance
Research the target company’s Analysis of compliance with local Intellectual property evaluation
culture laws and regulations IT infrastructure and operations
Compare and contrast both cultures Contract analysis with suppliers, Product and technology roadmap
Identify potential cultural conflicts customers, employees review
Develop a cultural integration plan Risk assessment Team and talent evaluation
Implement and monitor the Report and recommendations Compliance with industry standards
integration Negotiation and finalisation and regulations
Implement and monitor the Post-acquisition and integration Financial assessment of technology
integration investments
Evaluate post merger integration Vendor and third-party assessment
success

POST M&A STRATEGIC & CULTURAL HR

INTEGRATION
Align vision and goals; cultural HR Policies and Benefits, Talent
FINANCIAL assessment and alignment Management and Retention; Training
communication. and Development
Financial Systems and Controls, Cost
Synergies, Revenue Synergies OPERATIONAL COMMUNICATION & BRANDING
TECHNOLOGY & IT
Business processes; supply chain and Unified Branding and Marketing;
IT Systems Integrations, Data logistics; product and service Stakeholder Engagement
Integration and Security intergration.

POST M&A COVENANTS Non-Solicitation Covenant: Confidentiality Convenant:

ACCOUNTING restricts the target company ensures that both parties
from soliciting or hiring maintain the confidentality of
Non-Compete Covenant: prohibits employees or customers of the sensitive information shared
Financial consolidation and integrations the target company or its key acquiring company for a during the due diligence
Financial reporting requirements employees from engaging in certain period after the merger process and subsequent
Purchase price allocation activities that compete with the or acquisition. integration.
Identifications and valuation of intangible asset acquiring company’s business for a
FMV of tangible assets specified period of time and within a Financial Covenant: designed to maintain certain financial
Goodwill calculation and recognition defined geographical area. performance levels after the merger or acquisition.
M&A DEAL BUY SIDE ROADMAP

PRE-ACQUISITION

Preliminary target search utilise

Strategic planning: Define clear objectives, identify
databases, industry reports, M&A
synergies, potential markets, and target company
consultants and other sources to
characteristics
identify these companies

Initial Contact and Expression of

Evaluation of public available
Interest
data about target such as
financials, activities, people

Initial business valuation based on

NDA agreement seller representations

Letter of Intent Legal due diligence

Financial and tax due diligence

Cultural due diligence

Tech due diligence

Commercial due diligence

Final valuation of target

Negotiation regarding the price, terms,
contingencies, and structure of
the deal
Considering financial
sources

Legal aspects of purchase

agreement and ownership transfer

POST-ACQUISITION

Integration: Management
onboarding, employees, Purchase price allocation in line with GAAP
processes and procedures, and drafting consolidated financials
technology and system
integration etc
Goodwill impairment testing
at financial year end
 PRIVATE VENTURE
EQUITY vs CAPITAL

PRIMARY GOALS

Take control of established companies, optimise Take minority ownership in startups, nurture
operations and drive growth before an eventual innovation and growth, with an eye on substantial
profitable exit. returns from these high-potential companies.

TYPE OF COMPANIES TARGETED

Focuses on mature, established companies that are not Targets early-stage or startup companies with high
often underperforming or in need of revitalisation. growth potential, often in emerging industries like
These firms are usually not publicly traded. technology, biotech, or green energy.

INVESTOR BASE

Accredited investors: high net-worth individuals and Accredited investors: high net-worth individuals and
institutional investors. institutional investors.

INVESTMENT SIZE

Involves larger investments, often in the range of Smaller investments compared to private equity, often
millions to billions of dollars. in the range of thousands to millions of dollars.

USE OF DEBT

Known for significant use of debt, especially in Clear of debt, betting solely on equity growth
Leveraged Buyouts (LBOs), to amplify potential returns. in startups.

INVESTMENT DIVERSIFICATION

Moderate diversification, with a focus on concentrated High diversification, as funds are allocated across a broader
investments in fewer companies. portfolio of startups to manage the inherent high risk.

RISK PROFILE OF INVESTMENTS

Medium risk, as investments are made in established High risk, with the potential for outsized returns from
firms with a proven track record. a select few successful startups.

RETURN EXPECTATIONS

Expects substantial returns, often through a mix of Looks for exceptionally high returns due to the high
debt and equity. The investment horizon is typically risk involved. The investment horizon can vary but
medium to long-term around 4-7 years. often focuses on long-term growth potential.

EXIT STRATEGIES

Common exist strategies include selling the company

Exits typically occur through an IPO or acquisition
to another firm (trade sale), an initial public offering
by a larger company.
(IPO), or a secondary buyout.
FINANCIAL DUE DILIGENCE
CHECKLIST

GENERAL ANALYTICAL PROCEDURES INTERNAL CONTROLS

All internal accounting acts reviewed Actual vs comparable period and Review competences, processes,
(accounting policies etc) differences investigated controls in accounting sector

Audit reports reviewed Review of key ratio numbers and Review competences, processes,
changes in ratio numbers controls in controlling sector
Auditor management letter points
reviewed Not working capital reviewed Review competences, processes,
controls in tax department
Tax authorities findings reviewed Budget achievements reviewed and
differences investigated Review of automatic internal controls
Compare official financials and reports
for management Review monthly movement in sold Test how is internal controls is
quantities, revenues and margins performing
Findings of other external financial or
tax consultants reviewed EBITDA adjustments review and check Review of monthly / annual closing
procedures
Review business plan and budget Quality of earnings report checked

Business understanding: review main Cash flow statement calculation and

processes: sales, purchases etc verified
INVENTORIES
Net profit margins and EBITDA margins
reviewed
PROPERTY PLANT, Compare official financials with
Inventory structure analysed (raw
EQUIPMENT AND IP materials, WIP, FG)
management reports
Annually / monthly movement in stock
Ownership documentation reviewed
reviewed and explained
(eg. Title deeds)

Days inventory outstanding (DIO)

Useful life for all IP and PPE item groups INVESTMENT IN ASSOCIATES reviewed and explained
reviewed AND SHARES
Inventory cost and recognition is
Variance between tax and accounting Investment in associates reconciled with aligned with GAAP/IAS
depreciation rates explained associate’s equity
Review the results of annual stock
Movement in IP and PPE balances Purchase agreements reviewed inventory
explained
Check how well associates is operating, Shortages, write-offs and surpluses
PPE and IP registers reconciled with GL is there impairment needed? verified and explained
accounts
Valuation of shares listed on stocks is Inventory register reconciled with GL
Check weather GAAP is applied when properly done accounts
PPE or IP is acquired (test)
Check capital gains/losses if any Stock ageing structure analysed
Check weather GAAP is applied when
PPE or IP is sold (simple test)
Cost vs Net realisable value compared
Review useful life for all IP and PPE item
groups

Is there PPE or IP impairment

indicators?

Check capital gains/losses if any JOHN PATEFIELD

Senior Advisor at
Venture Completes
FINANCIAL DUE DILIGENCE
CHECKLIST

REVENUES LOANS & INTEREST EXPENSE ACCOUNT RECEIVABLES

Revenue structure analysed (per Creditor list per funding amount and Annually / monthly movement in AR
product, categories, business units etc) balance prepared and analysed balance reviewed and explained

Annually / monthly movement in Loan balances reconciled payment Customer list per sales and balances
revenues reviewed and explained plans - loan schedule perpared and reviewed

Main customers’ contract reviewed and Loan agreements, mortgages and other Ageing structure / Overdue list of AR
aligned with associated revenues debt documents reviewed prepared and analysed

Gross margin analysis done: movement Interest expenses properly accrued Check how much AR balances is
in GM, GM per products etc based on payment plans reconciled with debtors

Discounts to customers recognised in Short term vs Long term liabilities AR sub-ledger reconciled with AR
appropriate reporting period presented in line with payment plans general ledger accounts

Revenues reconciled with sales reports Net Financial Position calculated Movement of AR impairments and
for management reversals prepared and reviewed
Debt to equity ratio calculated and
Sales actual vs budget vs LY analysis analysed Main customers credit rating and
performed liquidity checked
Debt to EBITDA ratio and Income
Coverage Ratio checked Collection / credit risks identified and
explained
Debts covenants evaluated
ACCOUNT PAYABLES Days sales outstanding (DSO) reviewed
and explained
Annually / monthly movement in AP
balance reviewed and explained AP provision analysed and explained
COMMITMENTS & CONTIGENCIES
Supplier list per purchase value and
balance prepared and reviewed Litigations and litigations risks reviewed

Ageing structure / overdue list of AP Assumptions of debt litigations HEADCOUNT & SALARIES
prepared and analysed reviewed
Management labour agreements
Check how much AP balances is Contracts that involve payments reviewed
reconciled with debtors exceeding material amounts reviewed
Typical employee labour agreement
AP sub-leader reconciled with AP Calculation of potential liabilities based checked
general ledger accounts on current contracts
Cost of salaries matches with the
Consider reasons if due liabilities is not Check procedures that company apply amounts in agreement
paid - (impact on NWC) when approve material contracts
All bonuses and benefits properly
Days payables outstanding (DPO) List of guarantees reviewed accrued
reviewed and explained
Check environmental commitments, Annually / monthly movements in
liabilities, or contingencies salaries balance reviewed and explained

Interview key stakeholders to gain Average monthly salaries analysed

insights into contingencies
Ratio salaries in revenues reviewed
during periods

Short-term and long-term employee

STEPHEN TAYLOR benefits check

Transaction Manager at
Venture Completes
 FINANCIAL DUE DILIGENCE
CHECKLIST

OPERATING EXPENSES OPEX EQUIRY & OTHER LIABILITIES INTERCOMPANY

OPEX structure analysed Subscribed equity reconciled with Understand the position of Company in
official business register the Group of related parties
Recurring operating expenses matches
with agreements Retained earnings / accumulated loss All related parties identified
matches with balance sheet data
OPEX variance identified and explained IC agreements examined
Statement of charges in equity reviewed
Ratio OPEX in revenues calculated and IC transaction reviewed
reviewed during periods Reserves examination if any
Verify if the IC pricing is aligned with
Prepaid expenses accrual checked Review of liabilities for taxes, customs market pricing
and other admin fees
Check the accruals for undeceived bills Analyse financial benefits and risks from
and other provisions Professional fees expense examined IC transactions

Main supplier contracts reviewed, key Analyse transfer pricing files

elements reflected in financials

COGS share in revenue: changes

considered and explained

Insurance agreement reviewed

Financial Due Diligence: Key Factors Review

IC Pricing Verified

IC Transaction Reviewed

IC Agreements Examined

Reserves Examination

Statement of Charges Reviewed

Retained Earnings Checked

Subscribed Equity Reconciled

Prepaid Expenses Checked

OPEX Variance Explained

Recurring Expenses Matches

OPEX Structure Analysed

0 5 10 15 20
FINANCIAL DUE DILIGENCE PROCESS

1 PREPARATION AND PLANNING

Engagement Setup Data Collection General Business Review

Define the scope and specific areas Make a list of requested Meet with key personnel of the
and depth of the investigation. documents and track status of target company to understand the
delivery business processes, financial
Assemble a team of professionals practices, and any unusual items
with expertise in financial analysis, Setup open questions on cloud
accounting, tax, etc and track status of delivery Understand business processes
like sales, purchase, payroll etc
Make timeline framework and Organise data room, and collect
duties of team members and review relevant financial review the business plan, business
documents, including financial models, budgets, etc
statements, tax returns, budgets,
etc

2 ASSESSMENT OF FINANCIAL FUNCTION AND TEAM

3 EXAMINING CONTRACT AND AGREEMENTS

INTERNAL ANALYTICAL
4 CONTROLS REVIEW 5 PROCEDURES

Segregation of duties, Authorisations and Segregation of duties, Authorisations and

approvals process. approvals process.

Automatic controls in system in the process of Automatic controls in system in the process of
revenue and cost recognition, reconciliation of revenue and cost recognition, reconciliation of
accounts. accounts.

Closing procedures and checks and others Closing procedures and checks and others

venturecompletes.com
FINANCIAL DUE DILIGENCE PROCESS

6 FINANCIAL STATEMENTS REVIEW

Income Statement Review Balance Sheet Review

Revenues structure analysed (per product, Assets ownership documentation reviewed

categories, business units etc)
PPE and IP registers reconciled with GL accounts
Gross margin analysis - movement in GM, GM per
products etc Inventory structure review (materials, WIP, FG)

OPEX analysis - movements, variance, contract Assets impairment testing

matches etc
Balance reconciliations with debtors and
Accruals recognition and cut off test creditors

Salaries analysis, industry benchmarks, taxes, Related parties relationships

employee benefits, owner compensation, stock
based compensation etc Commitments and contingencies

Other analysis AP / AR ledger reconciled with GL accounts

FINALISE REPORTING SET RESULTED

7 FROM DUE DILIGENCE PROCESS

Quality of Earnings Net Working Capital

Present normal and sustainable level of Present a movement in NWC and its main
operational earning to make sure that multiple- components, review of DSO, DIO and DPO. Fair
based price we pay for transaction is far. Usual value of receivables: overdue, bad debt, payment
subjects of adjustments: Revenues, Costs, Net terms, litigation, balance structure. Compare
Working Capital NWC/Revenue ration with industry benchmark
and peers.

Proof of Cash Net Debt

Present a reconciliation procedure results that’s Present target’s net financial position and how
used to prove the accuracy of the general ledger target use dept. to create an earnings. Estimate
cash amount. Present any unusual os suspicious how much additional debt company can bear, and
transactions, cash inflows and outflows analysis approach financial leverage.
etc
 ABCs of M&A

A
Acquisition
B
Business
C
Cash Flow
D
Due
E
EBITDA
Valuation Diligence Multiple

F
Financial
G
Goodwill
H
Historical
I
Intangibles
J
Joint
Analysis Data Analysis Identification Venture

K L
Letter of
M
Merger
N O
Offered
KPIS Non-Disclosure
Intent Agreement Price

P
Purchase Price
Q
Qualitative
R
Retention
S
Strategic
T
Tender
Allocation Factor Bonus Investors Offer

U
Upside
V
Vertical
W XeXit
Y
Yield Based
WACC
Integration Strategy Valuation

Z
Acquisition

venturecompletes.com
 M&A
BUY SIDE vs SELL SIDE

ENGAGED BY

An investor (Acquirer) A target company

MATCHMAKING ACTIVITIES

Identifying targets Indentifying potential investors

MAIN AREA OF CORPORATE FINANCE

Investment decisions Financing (Raising capital) decisions

DUE DILIGENCE PROCESS

Assisting target company’s

Detailed analysis of target company’s
management in responding to
books and other records
buy-side requests in DD

TRANSACTION VALUE

The goal is to decrease The goal is to increase the

the transaction value transaction value

VALUATION METHOD

DCF method primarily, then

Comparable companies/transactions
Comparable companies / transactions
method primarily, then DCF method
method

CONSULTING FEE STRUCTURE

Retainer usually, success fee

Retainer + Success fee
can be included
M&A MODEL - UNWRITTEN
Analyse Target’s books Valuation of undefinable
and identify fair value intangibles and goodwill
Input pre-merger Input pre-merger calculation and recognition
adjustment of assets and
Acquirer’s consolidated Target’s balance liabilities items, based on (Completed purchase price
balance sheet sheet GAAP or other standards. allocation)

Key Stages in the M&A Model

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This is the part of purchase price Projected Target’s BS before

A consolidated Acquirer’s
that exceeds the target equity valuation of identified intangibles
BS after transaction,
before DTA, DTL
recognition
This the amount of undeniable How the financing and payment
intangibles in this stage i.e. of transaction impact balance
before valuation of specific sheet
intangibles

venturecompletes.com
PROOF OF CASH - MODEL
WHY IS IT IMPORTANT?
It involves cross-checking the cash
transactions recorded by a company against 1 Detecting of fraudulent activities. One of the primary
reasons for performing a proof of cash is to identify any
its bank statements over a specific period.
discrepancies or unusual transactions that might
This is done to ensure that the reported indicate fraud.
cash position is accurate.
2 Evaluation of internal controls. A proof of cash can
also shed light on the effectiveness of a company’s
This step is crucial for due diligence, offering internal controls related to cash transactions. If there
a layer of financial accuracy and are numerous reconciling items or discrepancies, it
might indicate weak internal controls.
transparency before finalising an M&A deal.
3 Assessment of cash flow. For a potential buyer or
investor, understanding the cash flow is crucial. Proof of
The results of the proof of cash text can cash provides a detailed view of cash receipts and
significantly impact acquisition price. disbursements, helping assess the company’s liquidity
and operational efficiency.

HOW TO CONDUCT?

Starting position: ending cash from last

1. Decide period for review and break reported period prior to acqusition.
down per months or quarters
2. Make Proof of Cash Model
For each period, perform own
3. Gather necessary documentations calculation of cash flow based on
(bank statements, GL accounts, indirect method
transactions, trial balances)
4. Verification of cash transactions
Make reconciliation > Books vs > Bank vs
5. Match company data with model Mode outcome. Review differences and
6. Explain differences identify inaccuracy if any.

Work with us today! Visit:

venturecompletes.com

GARY SMITH
Managing Director of
Venture Completes