Private equity investors buy large or controlling stakes in more mature businesses. We prepare the accounts, schedules and forecasts a deal is priced from.
Both methods work from the company's records of earnings, working capital and net debt, so those records need to be complete and reconciled before a buyer starts its review.
Medium to long-term finance for more mature businesses
Finance for young companies
Sources: British Business Bank, private equity and British Business Bank, venture capital.
A buy-out means buying a majority stake in a business, often more than 50%. When the existing management buys the business it is a management buy-out, and when the purchase is mostly funded by debt it is a leveraged buy-out (British Business Bank).
Exits happen through a stock market listing, a sale to a trade buyer or a sale to another investor, so the investor will want accounts and reporting that will stand up to the next buyer's checks too.
The price is fixed from accounts at an earlier date
The price is set from accounts drawn up at completion
Locked box: ICAEW Guideline 71.
Source: ICAEW Corporate Finance Faculty, Financial Due Diligence, Guideline 71 (2024).
Accounts closed every month and reconciled, so the history the buyer reviews is complete.
Unusual income and costs listed with their evidence, so underlying earnings can be worked out.
Month-end schedules of debtors, creditors, stock, borrowing and debt-like items, which feed either the locked box accounts or the completion accounts.
A monthly forecast of profit and cash with its assumptions written down.
Corporation tax, VAT and PAYE up to date, with any open enquiries and reliefs claimed set out.
We quote this work in writing once we know the size of the business and the deal.
The British Business Bank describes private equity as medium to long-term finance for more mature businesses, often through buy-outs or buy-ins, usually taking a large or controlling stake. Venture capital buys minority stakes in young, often pre-profit companies (BBB, private equity).
Typically 4 to 7 years, followed by an exit through a stock market listing, a sale to a trade buyer or a sale to another investor.
Due diligence commissioned by the seller. If the deal completes, the advisers usually give the buyer, its lenders or both a duty of care so they can rely on the report.
No. The ICAEW's guideline says financial due diligence is not an audit and gives no assurance opinion.
In a locked box deal, an equity ticker passes to the seller the cash profits the business makes between the locked box date and completion.
