§ 01
| Diligence Area | Key Focus | Deal Breakers |
|---|---|---|
| Financial | Quality of earnings, working capital norms, off-B/S items | Overstated earnings, hidden liabilities |
| Legal | Litigation, IP ownership, contract assignability | Material pending lawsuits, IP disputes |
| Tax | NOL carryforwards, transfer pricing, audit history | Tax exposures exceeding representations |
| Commercial | Customer concentration, competitive dynamics | Top customer leaving, market decline |
| HR/Cultural | Key person dependencies, compensation obligations | Golden parachutes, mass departure risk |
§ 02
Quality of Earnings (QoE) analysis adjusts reported EBITDA for non-recurring items, aggressive accounting, and working capital normalization. The adjusted EBITDA often differs from reported by 10–20%.
§ 03
When analyzing an acquisition target, check: What % of revenue comes from the top 5 customers? What’s the customer contract renewal rate? High concentration = high commercial risk.
§ 04
Due diligence reveals the target’s top customer (30% of revenue) has a contract expiring in 6 months with no renewal commitment. What do you do?
§ 05
§ 06
During due diligence, buyer discovers target had $50M of undisclosed liability (environmental contamination). Purchase agreement has MAC clause. Can buyer walk?
Five questions · AI feedback
Sit with the ideas.
A buyer signs a merger agreement to acquire a manufacturing company for $2B enterprise value. Between signing and closing, the target loses its largest customer (18% of revenue) due to a product recall. The buyer invokes the MAE clause. Will the buyer likely succeed in terminating the deal?
Why: