Fruit tree - Plumtree
(now click on the words ‘fruit’, ‘branches’ and ‘roots’)

'

FRUIT

Quality of Earnings’ analysis

Your tree may bear fruit, but how good is that fruit? Does it look sweet and juicy, or is it bitter and dry?

· Due diligence procedures will analyse the true profitability of your target business, taking a sceptical view of the profit figure reported by the seller. Potential ajustments to profit can be highly significant to the buyer: a €1 drop in the reported profit of your target business can often mean a renegotiation of your purchase price by €4, €5 or more.

At ilv silver, we use our experience of Spanish accounting policies and practices, in addition to well-aimed questioning; if we believe further analysis is required, we roll our sleeves up and get into the detail.


BRANCHES

Profitability analysis and asset review

How strong are the branches that bear the fruit? Can the branches grow and produce even more fruit in the future? Procedures typically perfomed by ilv silver include:

· An analysis of the profitability by business line. What are the key profit-generators? Which business lines are under-performing?

· A review of the balance sheet of your target business and review the sustainability of its assets (its 'income-generating units'). Do they need to be replaced? What capital expenditure will be required in the future?

· A review of the employees of the business. What is the employment cost history? Are there any key employees?

The results of these procedures will help you decide if any pruning may be required post-acquisition: do the least profitable branches need to be cut away for the business as a whole to flourish?

ROOTS

Identifying potential show-stoppers and assistance with price negotiation

The fruit tree may appear firmly-rooted, but is it? Can you really tell if the tree's roots will be strong enough to nourish future yields?

· Due diligence analysis may unearth tax, legal, labour or accounting obligations that may not, at first, be visible. What areas of weakness does the business have? How might these affect future earnings growth? Are there any tax liabilities? Does the business have legal title to its assets? What liabilities come with the employees?

· A good due diligence review will help you value the business and negotiate the price. Does the trading history reflect strong customer and supplier relationships, and a well-known brand name? What should the value of goodwill be? Are the projections realistic?

At ilv silver, we can help you to decide if the business's foundations are strong enough to provide for future growth, or if the tree might fall down at any moment.