AI Skill Report Card
Creating Due Diligence Frameworks
Due Diligence Framework Creation
Quick Start
TARGET: [Company Name]
DEAL SIZE: $[Amount]
INDUSTRY: [Sector]
IMMEDIATE PRIORITIES:
1. Quality of Earnings - EBITDA adjustments analysis
2. Working Capital - 13-month average normalization
3. Customer Concentration - Top 10 customer revenue %
4. Integration Costs - IT, HR, facilities estimates
5. Synergy Model - Revenue/cost synergies quantified
Recommendation▾
Add more concrete input/output examples showing actual numbers and calculations rather than high-level summaries
Workflow
Progress:
- Financial Analysis - Quality of earnings, working capital normalization
- Business Analysis - Customer/supplier concentration, market position
- Legal/Regulatory - Compliance review, litigation exposure
- Integration Planning - Cost estimates, synergy quantification
- Risk Assessment - Top 10 risks identification and mitigation
- Deal Modeling - Returns analysis with sensitivity scenarios
- 100-Day Plan - Integration roadmap with key milestones
Step-by-Step Process
-
Financial Quality Assessment
- Normalize EBITDA (remove one-time items, owner adjustments)
- Calculate 13-month working capital average
- Identify recurring vs. non-recurring items
-
Business Risk Analysis
- Map customer concentration (% of revenue from top 5/10)
- Assess supplier dependencies and pricing power
- Evaluate competitive positioning
-
Legal & Regulatory Review
- Compliance status across key jurisdictions
- Outstanding litigation and regulatory issues
- IP protection and licensing agreements
-
Integration & Synergy Modeling
- Estimate integration costs (systems, people, facilities)
- Quantify revenue synergies (cross-sell, pricing)
- Model cost synergies (overhead reduction, procurement)
Recommendation▾
Include specific templates or frameworks (e.g., Excel model structure, risk register format) that users can immediately apply
Examples
Example 1: Input: Manufacturing company, $50M revenue, acquiring competitor Output:
TOP RISKS IDENTIFIED:
1. Customer concentration (40% from top 3 customers)
2. Aging equipment requiring $8M capex
3. Union contract expires in 6 months
4. Environmental compliance gaps - $2M remediation
5. ERP integration complexity - 18-month timeline
SYNERGIES QUANTIFIED:
- Cost: $3.2M annually (overhead reduction)
- Revenue: $1.8M annually (cross-selling)
- Integration costs: $5.5M one-time
Example 2: Input: SaaS company acquisition, $25M ARR Output:
QUALITY OF EARNINGS ADJUSTMENTS:
- Remove founder salary excess: +$500K EBITDA
- Normalize marketing spend: -$300K EBITDA
- One-time legal costs: +$200K EBITDA
- Adjusted EBITDA: $8.2M (32.8% margin)
KEY INTEGRATION MILESTONES:
Day 30: Customer communication plan
Day 60: System integration roadmap
Day 90: Combined sales team structure
Recommendation▾
Expand the Quick Start section with specific formulas or calculations (e.g., how to calculate normalized working capital, quality of earnings adjustments)
Best Practices
- Use 13-month averages for working capital to avoid seasonality distortion
- Quantify everything - assign dollar values to risks and synergies
- Validate assumptions with management interviews and third-party data
- Build sensitivity models - base, upside, downside scenarios
- Focus on material items - use 5% of EBITDA as materiality threshold
- Document data sources for all adjustments and assumptions
Common Pitfalls
- Over-adjusting EBITDA - stick to truly one-time, non-recurring items
- Underestimating integration costs - include hidden costs (training, temporary staffing)
- Overstating synergies - apply probability factors and realistic timing
- Ignoring cultural integration - factor in retention risks and change management
- Missing regulatory approvals - identify all required clearances early
- Inadequate IT due diligence - system compatibility issues are expensive and slow