Transaction advisory
Transaction due diligence with SpreadSpace: a guide for M&A advisory teams
A financial due diligence workflow for M&A teams: review historical results, assess proposed adjustments, and trace findings to supporting documents.
Financial due diligence asks what the records support and what still needs investigation. In SpreadSpace, advisory teams can organize supported financial documents, build spreadsheet analysis, and trace linked figures to their evidence.
This guide focuses on the financial analysis within M&A due diligence. The workflow starts with a defined scope, carries reported data and analyst assumptions separately, and ends with a reviewable explanation of the findings. Legal, tax, commercial, and operational workstreams have their own evidence and specialist review.
1. Define the entities, periods, and financial questions
Start by identifying the businesses included in the transaction and the periods under review. Establish whether each document describes an individual company, a consolidating group, or an already-consolidated business. Confirm the currency, monetary units, and accounting basis before comparing the figures.
For a public-company target or comparable, upload the relevant 10-K SEC filings for supported financial statement extraction. For public and private businesses, bring audited financial statement packets and the available supporting business tax returns, bank statements, and debt schedules. Track missing supporting detail as a request for information rather than filling the gap with an assumption presented as fact.
The scope should also identify the questions the analysis is meant to answer: historical performance, earnings adjustments, working capital, debt, cash generation, or financing capacity. Those questions determine which schedules the team needs to build.
2. Establish the financial history before making adjustments
Review the extracted statement structure in SpreadSpace, including the period labels, signs, totals, and units. Follow material source-linked figures back to the original document. Read the accompanying notes when the reported amount depends on an accounting policy, transaction, or change in presentation.
Annual, quarterly, and year-to-date figures need different treatment. As a simple illustration, a company with $40 million of prior-year revenue, $18 million in the current first half, and $15 million in the prior first half has $43 million of trailing-twelve-month revenue: $40 million plus $18 million minus $15 million. These are fictional figures, and the comparison assumes consistent scope and accounting treatment.
Build that calculation explicitly in the spreadsheet and retain the three historical inputs. Balance-sheet amounts describe a point in time and need a different comparison. A reviewable formula is more useful than a total whose periods cannot be explained.
3. Build earnings and working-capital schedules
Use the in-app spreadsheet to lay out reported results, proposed adjustments, and the resulting analytical view. For an earnings adjustment, record the amount, the period, the supporting evidence, and the reason the team believes it belongs in the analysis. Distinguish a management proposal from an adjustment the advisory team has reviewed.
For working capital, define which accounts the engagement includes and compare them across appropriate dates. A change in receivables, inventory, or payables can prompt requests for more detailed schedules and discussion of seasonality, collections, or payment timing. The spreadsheet lets the analyst build that comparison around the available financial inputs.
These are analyst-built schedules. Source-linked data and formulas support the investigation; quality of earnings conclusions, normalized working capital, and negotiated transaction adjustments depend on the team's procedures, evidence, and agreed definitions.
4. Connect cash flow and debt to the financing case
Examine the relationship between reported earnings, cash generation, and the obligations that cash must support. Review the available cash-flow statements, bank activity, and debt schedules, keeping their dates and coverage clear. Differences between the records should become specific follow-up questions.
Where the financing review includes multiple businesses or guarantors, use global cash flow to examine the selected parties and their debt service together. Inspect the contributing figures and ownership treatment, and explain which cash flows are available to support the proposed structure.
Keep the financing calculation distinct from a valuation forecast. Historical coverage, proposed debt service, and projected operating cash flow answer related questions, but each needs a stated basis and its own assumptions.
5. Check intercompany activity and group totals
M&A due diligence can involve operating companies, holding companies, and related entities. A group total may already include the businesses listed beside it, and reported consolidated statements may already reflect intercompany eliminations. Adding those figures together again changes the analysis.
For supported consolidating statements, review the retained entity and reported elimination detail alongside the consolidated result. Define the transaction's entity scope before deciding how an internal balance or transaction should be treated. When the documents do not contain the needed elimination workpaper, request it from the company.
6. Present findings for review
Arrange the financial history, adjustment schedules, and cash-flow analysis in the collaborative workspace. Review the material findings with the team, follow linked figures to their sources, and state the unresolved questions alongside the conclusions they affect.
Bring the analysis into the report workspace with the firm's narrative and supporting exhibits. Recorded edits and report finalization and reopening history give authorized reviewers additional context about the work. Source links explain the financial evidence behind the exhibits in SpreadSpace.
This is where financial due diligence also supports risk management: a reviewer can challenge an assumption, inspect a figure, and understand the basis for a conclusion before the transaction team relies on it.
Put the workflow to work on your next engagement
Bring a representative document set and one of your firm's diligence schedules to a walkthrough. Test how the supported extraction, spreadsheet, global cash flow, and review surfaces fit the way your transaction advisory team works.
Use one material finding to check that a reviewer can follow the reported figure, the analyst's calculation, the supporting evidence, and the team's conclusion.