Confirmatory diligence, explained simply
Where a seller has delivered a thorough and recent report, the buyer need not repeat all of it. The buyer’s team tests the largest adjustments against source documents, rolls the numbers forward for recent months and checks anything that has changed.
It is also used as a bring-down review shortly before signing or closing, and by lenders confirming key figures before funding.
Confirmatory review outcomes
IllustrativeItems are confirmed, adjusted or remain open pending evidence.
Worked example
Alder Creek’s sell-side QoE shows adjusted EBITDA of $4.6 million for the twelve months to June. Over two to three weeks the buyer’s team tests the five largest adjustments against source documents, re-performs proof of cash for selected months, rolls results forward to September (LTM EBITDA $4.7 million) and reviews working capital.
One adjustment worth $0.1 million cannot be supported and is removed. The agreed figure remains $4.6 million.
Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.
Why it matters in a deal
It saves time and cost while preserving the buyer’s protection. The scope depends on the quality of the seller’s report and the size of the risk.
Red flags
- Recent months that depart from the historical trend
- Adjustments the seller cannot document
- A sell-side report prepared on an outdated period