workflow-pe-due-diligence

# PE Due Diligence ## What this skill covers Two linked workflows: (1) a comprehensive DD checklist to track open items by function and priority, and (2) management meeting preparation with agenda and question sets tailored to each C-suite function. ## DD Checklist Workflow ### Checklist Structure Each item carries: - **Priority**: critical / important / nice-to-have - **Status**: pending / in-progress / complete / N-A - **Owner**: deal team member responsible - **Due date**: aligned with exclusivity timeline ### Functional Categories **Commercial** - Market size and growth — TAM/SAM with source (critical) - Top-10 customer interviews and concentration analysis (critical) - Competitive positioning, pricing power, switching costs (critical) - Sales pipeline quality and conversion rates (important) - Contract terms: duration, renewal rates, change-of-control provisions (important) **Financial** - Quality of earnings — EBITDA add-backs with auditor support (critical) - Working capital: seasonality, NWC target, intra-year swings (critical) - Maintenance vs growth capex split by asset category (critical) - Tax exposure: NOLs, deferred tax assets, transfer pricing, open years (important) - Contingent liabilities: litigation, environmental, product warranty (important) - AR ageing: DSO trend, bad debt reserve adequacy (important) **Legal** - Corporate structure and entity org chart (critical) - IP portfolio: ownership, registration, freedom-to-operate (critical) - Material contracts with change-of-control triggers (critical) - Litigation history and current disputes (important) - Regulatory licences and permits (important) - Employment and non-compete agreements (important) **Operational** - Technology stack and cybersecurity posture (important) - Supply chain concentration: top-5 suppliers as % of COGS (important) - Facilities: ownership vs lease, capacity utilisation, deferred maintenance (nice-to-have) - HR: attrition rate, key-person dependencies, succession plans (important) **Management** - Background checks and reference calls (critical) - Track record: prior roles, successes, failures (critical) - Equity rollover commitment and incentive alignment (important) - Succession planning for CEO, CFO, COO (important) ## DD Meeting Prep Workflow ### Step 1 — Review screening findings Re-read the screening memo. Identify red flags and unresolved questions that must be addressed in management meetings. ### Step 2 — Gather financial context Call `fmp_income_statement` with period "annual" and limit 5 for 5-year trend. Call `fmp_key_metrics` for margin and efficiency benchmarks. Flag material anomalies (margin swings, revenue step-changes) to probe. ### Step 3 — Build agenda by function Each session: 60-90 minutes. Structure: intro context-setting → open-ended exploration → specific data probes. | Function | Focus areas | |----------|-------------| | CEO | Market positioning, growth strategy (organic vs M&A), customer strategy, top risks | | CFO | Revenue recognition, EBITDA adjustments and add-backs, working capital management, capex split, tax/NOLs | | COO | Capacity utilisation, supply chain risks, technology systems, operational KPIs | | CTO | Tech stack, technical debt, cybersecurity posture, product roadmap | | CSO/Head of Sales | Pipeline quality, win/loss rates, customer concentration, pricing strategy | ### Step 4 — Question sets (5-10 per function) Lead with open-ended questions; follow with specific data requests. Include "red flag probes" derived from screening memo anomalies. Example probes for CFO: - "Walk us through the $X add-back on the QoE — what supporting documentation is available?" - "How does the working capital requirement vary across your seasonal peak? What is the peak-to-trough NWC swing?" - "What is the split between maintenance and growth capex in the most recent three years?" ### Step 5 — Data requests Compile a single data request list: - Monthly financials (24-36 months, P&L and balance sheet) - Top-20 customer detail: revenue, tenure, contract length, renewal status - Employee roster by function and cost centre - Capex project breakdown (maintenance/growth/IT) for last 3 years - Legal entity org chart and ownership structure ## Output format 1. **DD checklist** — functional table with priority, status, owner, due date 2. **Meeting prep pack** — one section per function: agenda, open-ended questions, red-flag probes, data requests 3. **Open items tracker** — summary of critical items pending with escalation owners ## Quality gates - [ ] All critical DD items have an owner and a due date within exclusivity window - [ ] Financial anomalies from screening memo appear as specific meeting probes - [ ] Data requests list is consolidated (no duplicates across functions) - [ ] Red-flag probes are specific (not generic) — each references a number from the financial analysis ## Related skills - `workflow-pe-deal-sourcing` — upstream sourcing and screening - `workflow-pe-ic-memo` — downstream IC memo production after DD completion - `workflow-pe-returns-analysis` — preliminary returns model to cross-check deal economics